Annual Report and Financial Statements 2017 2 Annual Report and Financial Statements 2017 Contents

Report from the Chair and the Director 5

Trustee’s Report 8

What we do 8

Review of Charitable Activities 9

Review of Investment Activities 18

Financial Review 29

Structure and Governance 34

Risk Management 37

Remuneration Report 40

Audit Committee Report 43

Independent Auditor’s Report 45

Financial Statements 58

Consolidated Statement of Financial Activities 58

Consolidated Balance Sheet 59

Statement of Financial Activities of the Trust 60

Balance Sheet of the Trust 61

Consolidated Cash Flow Statement 62

Notes to the Financial Statements 63

Reference and Administrative Details 117

3 Wellcome Trust Annual Report and Financial Statements 2017 “At Wellcome, we believe in the power of ideas to improve health” Director

4 Wellcome Trust Annual Report and Financial Statements 2017 Report from the Chair and the Director

“Our core approach is funding people to explore great ideas, at every step of the way from discovery to impact”

At Wellcome, we believe in the power of ideas to improve cause of maternal mortality in the world. It also includes health. Funded from our independent investment portfolio, supporting research in the humanities and social sciences, we support thousands of scientists and researchers in more such as a project which this year published ethical guidelines than 70 countries, as well as innovators, educators and artists. for involving pregnant women in Zika vaccine research. Together, we take on big problems, fuel imaginations and spark And resources like the Human Induced Pluripotent Stem Cell debate, working always to achieve better health for everyone. Initiative, which has created a catalogue of high-quality stem cell lines for other researchers to use, whether in developmental Wellcome has grown significantly in recent years, in terms of biology or research into diseases such as cancer. both influence and how much we can spend on our charitable activities. This year, Wellcome spent £1.1 billion, more than ever before and double what we spent a decade ago. Our investment Ambitions and opportunities portfolio returned 16.9% in the year to September 2017; this Having committed to a new scale of ambition in our strategic equates to £3.5 billion on the year’s starting value of £20.9 framework in 2015, we continued to develop the strategies billion. The 9.1% annual return over the past decade is an of our three funding divisions – including Science under the excellent result given that this period included the worst financial leadership of Jim Smith, who became Director of Science crisis in living memory. The financial strength we derive from our in December 2016 – and to make other changes within £23.2 billion portfolio underpins the ability to pursue our mission. Wellcome this year. Our aim, supported by our governance and management of risk, is to make the organisation better Improving health prepared to operate at this new scale, and achieve the We start with an example. In 1980, Chris Fairburn arrived ambitious goals we set ourselves. in Oxford with an idea. He thought that a form of cognitive The past five years have seen a powerful bull market behavioural therapy (CBT) might be the best way to treat from which Wellcome has benefitted enormously, but the bulimia nervosa, an eating disorder. His research has investment environment will become more difficult at some continued with support from Wellcome ever since and point. We are concentrating on careful stewardship of the Chris has proved that his idea was a good one. assets and partnerships in which we invest, aiming to ensure In May 2017, a version of CBT developed by Chris and his that the portfolio is capable of generating cash flow sufficient colleagues was formally recommended in the UK for treating to support the current level of spending on key activities in adults with any form of eating disorder. Now approaching real terms, even against a more challenging backdrop. retirement and the end of his Wellcome Principal Research We have also been examining how best to balance protecting Fellowship, Chris has led the development of an online our core activities with being well placed to take risks and seize training programme for therapists, which means his idea has new opportunities. From 2017/18 onward, we have adopted the potential to help millions of people affected by eating a new approach to how we fund our charitable activities. disorders around the world. We plan an average funding level for our core activities of This case illustrates our core approach: funding people to around £900 million a year in real terms over a five year period, explore great ideas, at every step of the way from discovery thus protecting this funding from the volatility of the financial to impact. Everything we do is grounded in our support for markets, and bringing long-term stability to our spending plans. research that generates new knowledge in biomedical science, In addition, we plan discretionary funding to support Priority from how the body works to how infectious diseases spread. areas and other opportunities to bring about lasting changes Our approach includes funding large-scale studies like the that will make a big difference to human health in the short- WOMAN trial, which showed this year that an inexpensive drug or long-term. Reflecting this approach, the breakdown of our called tranexamic acid could prevent a third of maternal deaths spend on charitable activities now includes Priority areas as a caused by excessive bleeding after childbirth – the biggest separate item alongside our funding divisions.

5 Wellcome Trust Annual Report and Financial Statements 2017 Report from the Chair and the Director

“Our aim is to make the organisation better prepared to operate at this new scale, and achieve the ambitious goals we have set ourselves.”

Science thrives when it includes a diversity of people, benefits gained from deep EU partnerships are maintained, ideas and approaches, but the statistics show that major and that the UK can continue to attract excellent scientists at inequalities and barriers remain across the research all career levels. sector. We appreciate that Wellcome has a lot of work to do Research is a fast-moving intellectual endeavour, so internally on this issue, so one of our six current Priority areas Wellcome needs to have a working culture that can adapt to is Diversity and Inclusion, with a dedicated team driving new opportunities. In line with the same financial discipline reform within Wellcome first, as well as seeking to influence we expect of our grantholders, budgets for internal support the whole sector and society more widely. This work should activities were held at levels similar to last year to ensure that benefit not just individuals but the entire scientific enterprise. as much of our spending as possible goes directly towards Another Priority area is Vaccines, and the team leading our work achieving our mission. We thank our colleagues at Wellcome in this area played a central role in the launch of the Coalition for embracing this and other significant changes this year that for Epidemic Preparedness Innovations (CEPI) at the World put us in an even better position to support great ideas that Economic Forum in January 2017. CEPI brings together will improve health. governments, civic society, businesses and charitable foundations around the world to develop vaccines against We also thank the global research community for their infections with the potential to cause epidemics and pandemics. essential support for all our work, from reviewing grant applications to sitting on committees and providing advice. Working together Without such dedication, the research enterprise simply would not function and the benefits to society would be lost. Operating at such a scale will always require strong partnerships. This year, we worked closely with the G7 and served as a Governor of the Wellcome Trust G20 nations, and at the United Nations General Assembly, from 2007 until December 2016, and will be to secure commitments to act on some of the biggest health stepping down from the Board of Governors in January 2018 challenges in the world today, including drug-resistant after ten years, including four years as deputy chair. Bill Burns infections and climate change. These are Priority areas for was appointed Chair of the Audit Committee in January 2017. Wellcome, and our policy and advocacy work is becoming We are grateful for all their wisdom, invaluable contributions more significant as we seek to engage the world’s political and support during this transitional phase for Wellcome. leaders in order to achieve our goals. Finally, we want to thank Danny Truell who has been an As negotiations continue for the UK’s exit from the European extraordinary Chief Investment Officer for Wellcome. From Union, we are engaging with representatives on both sides to 2005 until he stepped down to become Emeritus Partner in ensure that British research continues to contribute to, and September 2017, he led a team which delivered returns that benefit from, the closest possible ties with Europe. It is vital, have allowed us to more than double our charitable spend and both for global science and the British economy, that the given us confidence of meeting our ambitions for the future.

Eliza Manningham-Buller Jeremy Farrar Chair, Wellcome Trust Director, Wellcome Trust

6 Wellcome Trust Annual Report and Financial Statements 2017

Trustee’s Report

What we do

We are an independent global charitable Together, we can do more. We can drive Driving reform foundation dedicated to improving health. reform to ensure that ideas can reach their We promote change in practices and the full potential. And we can give focused, removal of barriers so that ideas can reach Our vision and objects intensive support when we see real their full potential – leading by example, opportunities to transform lives. As an The objects of the Wellcome Trust, as set convening alliances, and campaigning for independent charitable foundation, we are wider reform in priority areas. out in our Constitution, are: willing to take risks. We combine the ability To protect, preserve and advance all or to act swiftly with long-term ambition. Current priority areas: Diversity and any aspects of the health and welfare of inclusion, and Science education. humankind and to advance and promote Our strategic framework knowledge and education by engaging in, Wellcome benefits people around the Our funding approach encouraging and supporting: world by improving health through three For 2016/17, we used an established • research into any of the biosciences; complementary approaches across formula to identify the amount of funding and science, research and engagement with that we would plan to commit over a five society. This framework allows us to year period, including the value for the first • the discovery, invention, improvement, adapt as new ideas and challenges arise, year. Based on this plan our charitable development and application of drawing on insights from more than 80 expenditure was £1,134 million this year. treatments, cures, diagnostics, and years of achievement and our broad other medicinal agents, methods and As announced in September 2017, from network of experts. processes that may in any way relieve 2017/18 onward, we have adopted a new illness, disease, disability or disorders approach to how we fund our charitable of whatever in human beings or Advancing ideas activities. The new approach will protect animal or plant life; We support excellent research addressing our core activities in Advancing Ideas and fundamental health challenges of our To advance and promote knowledge and provide stability and predictability for our time, across discovery science, medical education by engaging in, encouraging spending plans. We plan a funding level of innovation and the humanities and social and supporting: around £900 million a year, on average, sciences. Supporting ideas from people over a five year period, which we intend to • research into the history of any of the dedicated to discovery, creativity and increase annually with inflation. biosciences; and innovation will always be at the heart of Wellcome’s activities. In addition, to support the Priority areas, • the study and understanding of any and potentially other large-scale and of the biosciences or the history of We are open to proposals and give high-impact activities, we plan additional any of the biosciences. grants through schemes run by our three discretionary funding. We have currently funding divisions: Science, Innovations, identified funding of £865 million, of which Our philosophy and Culture and Society. We also initiate £365 million has been budgeted to existing Good health makes life better. We want and maintain direct activities, such as priority areas. We will add to this funding to improve health for everyone by helping . only when the investment portfolio great ideas to thrive. performance is sufficiently strong. New Seizing opportunities priority areas or other activities supported Science and research expand knowledge When we judge that concerted intervention through this funding will be highly ambitious by testing and investigating ideas. New will accelerate progress towards better projects aiming to bring about significant understanding can then be applied to health, we provide focused, intensive change within a specific time period. health, and change medicine, behaviour support to create a step change in a and society. That is why we support The approach outlined above will help priority area within five to ten years. thousands of curious, passionate people us manage our internal resources all over the world to explore great ideas, Current priority areas: Vaccines, Drug- for achieving our long-term vision of at every step of the way from discovery resistant infections, Research in Africa improving health, as set out in our to impact. and Asia, and Our Planet, Our Health. strategic framework.

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Review of Charitable Activities

Science Our aim is to catalyse excellent science and maximise its health impacts. A major part of our work is engaging with the research community, many of whom will apply to and be supported by our funding schemes. £832m (Includes £51 million of allocated support costs)

Culture and Society We maximise Wellcome’s impact on human health by understanding the social and cultural contexts of science and health. This includes supporting research in the humanities and social sciences, and public engagement with science. £112m (Includes £23 million of allocated support costs)

Innovations We work with people and organisations across the world to transform great ideas, discoveries and inventions into treatments and products. £116m (Includes £9 million of allocated support costs)

Priority areas Wellcome chooses priority areas where we want to see significant change. We lead and are accountable for these activities, working with partners to achieve ambitious goals. £162m (Includes £6 million of allocated support costs)

Annual Charitable Expenditure is analysed in the Financial Review on page 30.

Our Mixed Motive Investments are discussed under the Review of Investment Activities on page 28.

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Review of Charitable Activities (continued)

This year, we celebrated many In March 2017, we published five broad Applying genomics achievements made by people we goals for our engagement with policy- The Wellcome Trust Sanger support through our three funding makers in the UK and around the world: Institute and the wider Wellcome divisions – Science, Innovations, and Genome Campus operate • Champion and support research Culture and Society – and our priority under the auspices of Genome through changing times areas. This report highlights just a few Research Limited (“GRL”), a examples – more can be found on • Ensure the world is prepared for wholly owned subsidiary of wellcome.ac.uk. These achievements the next epidemic Wellcome. In November 2016, Prime Minister Theresa May often reflect the results of many years • Advance the global response to opened two new buildings on the of research from previous funding. drug-resistant infections site: one housing sequencing Scientific research is inherently facilities for the Sanger Institute • Harness the creativity of innovators cumulative and progressive, opening and Genomics England; the other to deliver health impact up new knowledge, understanding and a Biodata Innovation Centre for start-up genomics companies. applications. The majority of our funding • Push research and development for supports hypothesis-based investigation; health up the global political agenda Bringing together local and global researchers from different sectors by definition, the outcome of such activity This included setting out our view of what fuels ambitious collaborations. cannot be predicted with certainty, but we science needs after Britain leaves the For example, the Human Cell are confident that the people, teams and European Union (EU) in 2019. We have places we support will produce valuable Atlas is using the latest genetic already seen, for example, a significant sequencing tools to characterise information and insight in support of our drop in applications from people in EU every type of cell in the human overall mission to improve health. The countries to do PhDs at the Wellcome body. It is led by scientists at the funding of translation activity is structured Trust Sanger Institute, emphasising the Sanger Institute and the European through milestones, ensuring only need for a straightforward migration Bioinformatics Institute, which is successful activity is fully supported. system that welcomes students, also on the campus and is part of the European Molecular Biology Two years ago, our strategic framework researchers, technicians, innovators and Laboratory. set a new scale of ambition for how their families to the UK. Two other areas Wellcome should work taking into account we want the government to prioritise are the sustained growth of our investment strong investment in British research, portfolio, the expertise we support and the and a commitment to securing associate influence we have in the world. We have membership of EU science schemes that committed to maintaining or increasing promote international collaboration. our existing levels of support for great After setting out our position to political ideas in research, innovation and public parties standing in the UK’s General engagement, while also looking for Election in June, we have engaged with opportunities to transform specific areas representatives from both the UK and we have prioritised. the EU as Brexit negotiations continue. Wellcome’s voice as an advocate for science has been heard in public as well as private: in September 2017 we coordinated the launch of Together Science Can, a campaign to celebrate and build support for international collaboration in research. Globally, we worked closely with the G7 nations and also the G20, chaired by Germany this year, to secure commitments from their leaders to act on urgent health problems including epidemics, drug- resistant infections and climate change.

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Wellcome Centres give groups of Membership of the Executive Leadership Advances in surgery researchers funding for the shared Team (“ELT”, formerly the Executive One of three new Centres in facilities, collaboration and training they Board) was extended to include four our Innovations portfolio, the need to deliver world-leading, high- additional roles, while four more Wellcome EPSRC Centre for impact research. Following an open colleagues were recruited to sit on ELT Interventional and Surgical competition last year across our funding subcommittees. As well as bringing Sciences has been established portfolio, eight renewed Wellcome new skills to the leadership team, this at UCL to develop more precise, Centres were joined by seven new ones, increased the range of perspectives at less invasive surgical procedures. As well as safer treatments and which opened or prepared to open this the top of the organisation. shorter recovery times in hospital, year. Although the outcome has been As the scale of Wellcome’s charitable this should mean that more people very positive, we have reflected on a activities has grown over recent years, can be offered the benefits of process that, while allowing us to weigh the amount we spend on support complicated but life-altering all the proposals against each other, functions has grown at the same rate, surgery. took a lot of time and effort from many whereas we might have expected to people. In future, we do not intend see this proportion decrease due to to consider this many applications for economies of scale. In line with the same Centre status concurrently. financial discipline we require of our Within Wellcome, we have continued to grantholders, therefore, this year’s make changes that will help us operate budgets for internal support functions and deliver at a more ambitious scale. were held at similar levels, in cash terms, In our funding divisions, we introduced a to last year. We are confident this remains new Innovations strategy this year, and a sufficient to support our funding and new Science strategy has been developed. direct activities. In Culture and Society, several funding schemes were merged into one Public Engagement scheme and a new strategy for Wellcome Collection is now in place.

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Science A national stem cell resource In 2012, Wellcome and the Medical Jim Smith joined Wellcome as Director of One aim is to strengthen the partnership Research Council announced a Science at the end of 2016. Since then, between Wellcome and the scientists we £13 million award for the Human he and his team have been developing support. Researchers help us choose Induced Pluripotent Stem Cell a new strategy to formalise and clarify the right science by peer reviewing grant Initiative (HipSci) to create a working processes within the Science applications, while Wellcome colleagues catalogue of high quality stem cells. These cells are available to division, strengthen collective decisions often help to shape the direction of other researchers who can use and ensure we improve health through applicants’ work. By building active and them to explore the biological funding the best research. Essential to productive relationships, we contribute mechanisms of development and this vision is supporting research that and achieve more together. For example, disease. The team, based in increases our basic understanding of life, a Science Strategy Advisory Group has London, Cambridge and Dundee, published details of their progress an inherently valuable human endeavour been established, with external experts in May 2017. They have generated with the potential to lead to advances in helping to review and advise on the an impressive 711 cell lines, all with health in the long term. activities of the Science division. detailed information about their genomes, and cell biology. The strategy outlines principles and In July 2017, a new strategy was mechanisms to: announced for funding longitudinal CBT for eating disorders population studies. This includes cohort • support research that creates In May 2017, the UK’s National studies such as ALSPAC in Bristol and Institute for Health and Care knowledge the Pelotas study in Brazil, as well as Excellence recommended an • strengthen research capability panel surveys and biobanks, all of which enhanced form of cognitive behavioural therapy (CBT-E) for Wellcome has long supported with more • use knowledge effectively treating eating disorders in adults. than £120 million in grants over the past The therapy was developed by • promote an environment in which ten years. The new strategy streamlines Chris Fairburn, a Wellcome research can flourish. future funding and supports data sharing Principal Research in between studies. Oxford. Professor Fairburn and his team received long-term support from Wellcome to evaluate it and then to adapt it for treating any eating disorder. Further Wellcome funding enabled them to develop an online training programme, which more than 2000 therapists all over the world have used so far.

Improving child health In the 1980s, César Victora worried that findings from longitudinal studies in high-income countries might be of limited use in his home country of Brazil, where poor fetal growth, childhood infections and malnutrition were still common. He set up a study of nearly 6000 babies born in the city of Pelotas in 1982, and with funding from Wellcome and others, has followed up these children – and two later cohorts – at intervals ever since. Professor Victora was awarded the 2017 John Dirks Canada Gairdner Global Health Award for outstanding contributions to maternal and child health and nutrition in low- and middle-income countries, with particular focus on the long-term impact of early nutrition. 12 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Review of Charitable Activities (continued)

Innovations Affordable vaccines Wellcome’s innovation team has Our aim is to: In 2009, Wellcome and Merck (USA) created the Hilleman supported many projects to help advance • maximise impact from the science Laboratories, a £90 million ideas from discovery to the point at which Wellcome supports research and development joint they can be commercialised by others. venture based in New Delhi. Its This has led to the development of over • develop a portfolio of innovative not-for-profit mission is to develop 30 new products to date, a similar products, technologies and affordable vaccines for diseases number of projects reaching the clinic, interventions that commonly affect low- and and others still at an early stage but with middle-income countries. Under • mitigate the impact of disease the potential to save and improve lives. the leadership of Davinder Gill, through innovation. Hilleman has grown into a Our new strategy, launched in February We are piloting a new translational successful and innovative 2017, marks a significant change of partnership model with a small number partnership, and major advances approach. As a result, this has been a of Wellcome-funded universities and were made this year in testing year of transition: we closed our previous affordable vaccines against institutes. The aim is to create a more response-mode schemes and created a cholera and rotavirus, a major explicit link between science and new set of activities that allow us to work cause of child deaths. innovation. Innovator Awards, our more intensively with our partners and open-call funding scheme, are designed Safer childbirth with greater flexibility. We are focusing on to support new projects and broaden a small number of ambitious programmes Severe bleeding after childbirth is our innovation network. the biggest cause of maternal with potential to transform health death in the world, affecting 14 outcomes. These include the Hilleman We will select the opportunities that million women a year and causing have the greatest potential for impact, Laboratories in New Delhi, and three 100,000 deaths. Widely available Wellcome Centres in the UK, two of which as opposed to commercial return. at around £2 a dose, tranexamic are in partnership with the Engineering With more focus, we expect to achieve acid is used to stop bleeding after and Physical Sciences Research Council. greater impact, and deliver a portfolio of major accidents and surgery, but innovations that will have a measurable had never been assessed for use positive effect on the health of at least in childbirth. The WOMAN trial, a million people each year by 2022. coordinated by the London School of Hygiene and Tropical Medicine between 2010 and 2016, tested tranexamic acid as a potential treatment for bleeding after childbirth. The study was funded through the Health Innovation Challenge Fund, a partnership between Wellcome and the UK Department of Health, and the Bill and Melinda Gates Foundation. Wellcome’s contribution was £1.8 million. Having recruited more than 20,000 mothers in 21 countries, results published in April 2017 showed that tranexamic acid had no side-effects for mothers or babies, and prevented almost a third of deaths due to bleeding. As a result, in November 2017, the World Health Organization began recommending tranexamic acid as a treatment for women diagnosed with severe bleeding.

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Culture and Society Body issues In November 2016, after a six-month This meant stopping some activities, such “The Sick of the Fringe” started at the 2015 Edinburgh Festival, pause in awarding grants for projects as supporting a commercial image library, celebrating and supporting shows that engage the public with science, and redefining how colleagues would that dealt with issues of health, we announced that we would consolidate work in the future. A number of new identity, medicine, and research. several open funding schemes into a roles were created and other roles As well as events for performers single scheme that is simpler and more made redundant, which had an impact and producers, arts and science flexible for applicants. This followed on morale as we tried to balance writers attend shows and produce the appointment in September 2016 transparency with sensitivity to those ‘diagnoses’ that put the issues of Imran Khan as Head of Public directly affected. We will now develop in a broader context. The project, Engagement. He has been developing Wellcome Collection under one brand as conceived by Wellcome a new public engagement strategy this a free museum and library that challenges Engagement Fellow Brian Lobel, year to define more clearly our ambitions how people feel and think about health. returned to Edinburgh in 2016 and 2017, and has spread to festivals for the future and how to account for in Manchester, Folkestone, our impact. London and Adelaide, Australia. It has also been a year of transition for Zika research ethics Wellcome Collection, our public venue in central London. Having relaunched in Since 2016, thousands of children 2015, we recognised the need to consider in South America have been born with microcephaly after their how activities within Wellcome Collection mothers were infected with the could be more closely aligned with each Zika virus. A number of potential other. We decided to focus on bringing vaccines are in clinical trials, together Wellcome Collection’s functions but pregnant women are often as museum and library, engaging a wider excluded from trials over safety range of people with our collections and concerns. Through our Humanities programmes, and creating a unified and Social Sciences funding approach to our digital activity. stream, Wellcome supported a group of experts this year to advise the research community on how they can avoid pregnant women and babies being unfairly excluded from the benefits of a future Zika vaccine.

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Priority Areas Open Research We currently have six priority areas, where establish a group called Equality, Diversity Wellcome has long been at the forefront of efforts to make we lead and are accountable for significant and Inclusion in Science and Health research data and publications change, working with partners to achieve Research, and held our first joint more open and accessible. This ambitious goals. New priority areas can be symposium in September 2017. year, we established an Open proposed at any time – an idea may then be Research team to coordinate Science Education given resources for a development phase, activities across the organisation, after which we decide whether or not to Science gives young people the and to develop and introduce new make it a priority area. opportunity to satisfy their curiosity initiatives. In November 2016 about how the world works. It also gives we partnered with F1000 to After a development phase this year, we them knowledge to make decisions in create Wellcome Open Research, chose not to make open research a priority life as well as skills for future study a platform for researchers we area. Instead, a new team was created to and employment. Science Education fund to rapidly publish any kind bring together everything we currently do began implementation in April 2016 of results. Articles benefit from and to set out a longer-term roadmap for as a priority area. immediate publication, transparent our work to support access to and sharing peer review and the inclusion of all of all kinds of research outputs. We aim to support and motivate teachers source data. to give students across the UK an The theme of young people’s mental inspiring and relevant science education. Curiosity Fund health was selected to go into a We have focused on three areas: In June 2017, Wellcome partnered development phase this year, and a science education research, professional with BBC Children in Need to decision on whether it becomes a priority development for science teachers, and a launch Curiosity, a £2.5 million area is expected in 2018. big push to transform primary science. funding scheme for exciting and engaging science activities aimed Diversity and Inclusion After more than a year of development at children and young people Wellcome made Diversity and Inclusion a and testing, we launched Explorify in experiencing disadvantage in the priority area in November 2016. Scientific September 2017. It is a free resource UK. Curiosity grants will enable innovation thrives on a diversity of people, that guides primary teachers through youth organisations to develop ideas and approaches, but we recognise activities that will help their pupils to informal learning activities to that the research community – including develop thinking skills and encourage support young people’s personal and social development through Wellcome – does not draw on as broad a them to explore the world around them science. This scheme was range of ideas, thought and participation more deeply. Thousands of teachers co-developed by Wellcome’s as it could, so we have budgeted £12.5 have signed up to get help to build their Education and Learning, Public million over five years to drive reform. own confidence, do more science in the Engagement, and Diversity and classroom, and access professional Our strategy includes commissioning Inclusion teams. development. research, incentivising and leading change, and working with networks across the corporate, public and health sectors to foster collaboration and influence policies. This year we partnered with the and GlaxoSmithKline to

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Research Ecosystems Drug-Resistant Infections New vaccines for in Africa and Asia Growing resistance to antibiotics and other a safer world In June 2016 we began implementation of drugs is a major health threat in the world The Coalition for Epidemic Research Ecosystems in Africa and Asia today. Drug-Resistant Infections was Preparedness Innovations (“CEPI”) a priority area. Having supported research formally made a priority area in November officially launched in January 2017 in these regions for many years, largely 2016 and good progress has been made with US$540 million of pledged through our five major Africa and Asia in implementing the programme in its first funding, including US$100 million Programmes, we are now doing more to year. For example, we partnered with from Wellcome through our Vaccines priority area, to develop develop the next generation of research the UK Department of Health and the Bill vaccines for potential epidemic leaders and support more resilient and Melinda Gates Foundation to include infections. Richard Hatchett research infrastructure. drug-resistant infections in the Global started as CEPI’s chief executive Burden of Disease index. This will provide In September 2016, we handed over two in April 2017. The coalition’s first much needed data about the true scale of major funding programmes to the Alliance call, launched in January 2017, the problem, and help guide national and was for proposals to advance for Accelerating Excellence in Science in international strategies for tackling vaccines for Mers-CoV, Africa (AESA), which has since continued drug-resistant infections. Lassa fever and Nipah virus, to develop robust and transparent and the second, launched in systems for managing grants. In March 2017, we announced £125 million September 2017, was for new over five years, subject to certain criteria The Wellcome Trust/DBT India Alliance, approaches to reduce the time being met, for the transatlantic partnership a co-funded initiative between Wellcome required to develop new vaccines. Combating Antibiotic Resistant Bacteria and the Indian Government’s Department Biopharmaceutical Accelerator of Biotechnology, launched in 2008 to (“CARB-X”). This biopharmaceutical support future scientific leaders in India. accelerator is funding biotech and To date, more than 250 Indian researchers research teams working on new antibiotics have been funded. Talented researchers or new ways to diagnose and protect have been attracted back to establish people against drug-resistant bacteria. research groups in India, which is having a positive effect on the Indian research Vaccines ecosystem. Vaccines have the potential to prevent millions of deaths from infectious disease. Our Planet, Our Health We made Vaccines a priority area for Health is intertwined with environment, Wellcome in November 2016, and so as the environment changes - whether implementation began in January, due to climate change or urbanisation - building a team with four focus areas. we will need ways to safeguard human In one of those areas, better preparing health. Our Planet, Our Health became a the world for epidemics, a significant priority area in October 2015 in order to step was the launch of the Coalition for coordinate Wellcome’s growing investment Epidemic Preparedness Innovations in in research to understand the complex January 2017. It brings together the links between environment and health. governments of Norway, India, Japan Four new major partnerships were funded and Germany, as well as the European in October 2016. Interdisciplinary research Commission, industry partners and groups are investigating what makes charitable organisations, including cities healthy, the benefits of ecologically Wellcome, the Bill and Melinda Gates and economically sustainable water Foundation and the World Economic infrastructure in informal urban settlements, Forum, to develop vaccines for infections sustainable and healthy food systems, with epidemic potential. and the future of animal-sourced food.

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Review of Charitable Activities (continued)

Social responsibility

Employment and inclusion This includes expanding membership For Wellcome, the British Safety Council of the ELT and being more open about Five Star Occupational Health and Safety Wellcome works with a variety of people decisions and long-term plans. Audit will now be conducted every two across different countries and cultures, years instead of annually. Higher risk which means equality, diversity and Volunteering has become a highly valued departments and divisions are audited inclusion are fundamental to our vision part of Wellcome’s ethos, with everyone internally every year, and no significant of improving health for everyone. having the opportunity to use paid actions have been raised. We help our colleagues maximise their volunteering leave. We ran our second achievements through a programme of Community Action Week in July 2017: Our Wellbeing and Environment group personal development. It is important to colleagues worked together on projects in supports and promotes HSE objectives, us all to create a culture that is ambitious, our local community, such as refurbishing and is actively involved in decision open and respectful, and in which a science garden at a primary school or making in relation to relevant initiatives differences are valued and celebrated. helping with a language café in Wellcome and changes. Collection’s Reading Room for asylum Guided by our Diversity and Inclusion priority We currently recycle 53 per cent of our seekers and refugees. area team, all members of Wellcome’s waste and continue to look for ways to Executive Leadership Team (“ELT”) have reduce the energy performance in our participated in a programme supporting Health and environment buildings. Replacing three air conditioning them to create cultures in which everyone Wellcome has a combined Health and chillers ahead of schedule but with new can thrive. We are changing recruitment Safety and Environment (HSE) policy, technology helped to improve energy processes to ensure applicants and and while responsibility for Environment efficiency this year. At our London colleagues from diverse backgrounds are remains in our People and Places properties, we reduced the consumption not disadvantaged when applying for jobs division, we have formed a new Risk, of electricity and gas by almost 11 per or accessing development opportunities. Health and Safety team in Finance. cent compared with the previous year. We are also working with organisations This enables closer working links with Wellcome’s carbon emissions, reported like Stonewall and the Social Mobility the Enterprise Risk Manager and greater under the Carbon Reduction Commitment Foundation to benchmark our progress. input into business continuity planning. Energy Efficiency Scheme Phase II, An Equality, Diversity and Inclusion We are committed to employees’ physical totalled 31,459 equivalent tonnes of carbon programme across the Wellcome Genome and mental wellbeing, and this year we between April 2016 and March 2017. Campus is addressing equality issues. signed the Time to Change Pledge, which The largest contributor is the Wellcome Key changes include a more equitable tackles stigma around mental health. Genome Campus, which includes the recruitment process, greater gender We have programmes to train colleagues Sanger Institute, our conference centre and balance on decision-making committees, in mental health first aid, as well as other buildings. Genome Research Limited proactively working to ensure equal supporting physical first aiders through is ensuring that all new and refurbished access to promotion and development recognised and certified first aid training. buildings are equipped with meters for opportunities, and further developing and electricity, gas and water to help At the , promoting a family friendly culture. understand usage and minimise waste. health and safety training includes Last year, the “Great Place to Work” specialist training for scientific survey provided a baseline against which laboratories. The Campus was Investments we could judge the success of our commended in the Royal Society for the Wellcome seriously considers the improvement programmes. Repeating the Prevention of Accidents Research and implications of our investments approach. survey this year confirmed that people Development Sector awards this year, Further details of our investment policy are proud to work at Wellcome, but many based on various elements of the health are in the Financial Review on page 32. wanted additional clarity on strategy and and safety management system. direction. The ELT has taken actions to improve transparency, communication and engagement with colleagues.

17 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Review of Investment Activities Investment Portfolio

Figure 1a Summary Total portfolio net returns (blended £/US$) 2016/17 was a strong year for most investment Period to 30 September 2017 assets, and a very good one for Wellcome’s portfolio. Annualised return in blended currency (%) Despite plenty of political noise, investors focused on an improving global economy, continued monetary Nominal UK/US CPI Real support from Central Banks and growing corporate Trailing one year 18.9 2.1 16.8 earnings. Unlike last year, the portfolio was not unduly Trailing three years 10.4 1.0 9.4 influenced by currency movements, although our Trailing five years 13.0 1.4 11.6 decision to increase exposure to the Euro helped. Trailing ten years 8.2 2.1 6.1 The big driver was buoyant equity markets, which brought strong gains in our public equity positions Trailing twenty years 8.0 1.8 6.2 and underpinned a positive environment for our hedge Since Oct 1985 13.7 2.7 11.0 fund and portfolios. Our overall portfolio rose by 16.9% in Sterling, equivalent to £3.5 billion, Cumulative return in blended currency (%) taking the value of the endowment to £23.2 billion. Nominal UK/US CPI Real Over the past ten years, which included the worst Trailing three years 35 3 32 global economic crisis in a generation, the portfolio has Trailing five years 84 7 77 delivered a real return after inflation of 112% in Sterling Trailing ten years 120 23 97 (138% or 9.1% a year in nominal terms). While we Trailing twenty years 368 44 324 expect future returns to be more muted, we are Since Oct 1985 5,908 134 5,774 confident that the portfolio will continue to generate sufficient cash flow to support charitable expenditure. £ used to 30 September 2009. Blended £/US$ 50/50 from 1 October 2009. Net returns include impact of all external management fees/expenses Overview and custodial costs. The period since the Global Financial Crisis (GFC) may be ‘the most hated bull market in history’. There Figure 1b has been an obvious disconnect between gloomy Total portfolio net returns (£) political headlines, and steadily rising stock markets. Period to 30 September 2017 The key to performance has been to stay invested in equities and avoid the temptation to sell. Our Annualised return in £ (%) long-term perspective has been extremely useful Nominal UK CPI Real in helping us maintain this discipline. Trailing one year 16.9 2.2 14.7 There has been a powerful economic story Trailing three years 13.8 1.0 12.8 underpinning financial markets. For the first time Trailing five years 15.0 1.5 13.5 since the GFC, we are seeing concerted economic Trailing ten years 9.1 2.4 6.7 growth around the world, including in previously Trailing twenty years 8.5 1.9 6.6 depressed areas such as parts of the Eurozone. Since Oct 1985 13.9 2.8 11.2 Economic growth has boosted corporate cash flows and fed through into equity prices.

Cumulative return in £ (%) Central Banks have resisted responding to stronger Nominal UK CPI Real growth and rising asset prices by raising interest rates quickly, for fear of short-circuiting the recovery. Despite Trailing three years 47 3 44 tight labour markets in major economies, there has not Trailing five years 101 8 93 yet been sufficient inflation to force Central Banks’ Trailing ten years 138 26 112 hands, and so favourable conditions have persisted. Trailing twenty years 407 47 360 Two big themes dominated markets this year. Since Oct 1985 6,410 139 6,271 Technological change, especially the increasing ubiquity of mobile computing, social networks and Net returns include impact of all external management fees/expenses and custodial costs. e-commerce, has led to accelerating growth from 18 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Review of Investment Activities (continued) Investment Portfolio

Figure 2 large technology companies from an already very Total portfolio cumulative net returns since 1986 (%) large revenue base. At the same time, more cyclical parts of the global economy have played catch up 6000 with US markets, as global growth has spread and the US Dollar has weakened. Emerging Markets have been at the front of this trend, but Europe and Japan 5000 have also benefitted. The 16.9% rise in the portfolio in Sterling was led by 4000 gains in the £13.5 billion public equity portfolio, which delivered returns of 19.6%, well ahead of the 3000 15.5% return from MSCI AC World. In US Dollar terms, the total portfolio returned 20.7%, as Sterling appreciated slightly after the UK economy 2000 outperformed expectations. Our internally managed

Cumulative return % Cumulative return portfolios again delivered strong performance, 1000 but our outsourced equity managers in developed markets also made a strong contribution. 0 Following a period of poor returns, our hedge funds Sept Sept Sept Sept Sept Sept Sept (£2.4 billion) performed well, with a Sterling return 1985 1990 1995 2000 2005 2010 2017 of 9.6%. With greater dispersion of performance Year between stocks and sectors, there have been more Wellcome Global Equities UK/US CPI + 4.5% opportunities for hedge fund managers to add alpha. £ used to 30 September 2009. Blended £/US$ from 1 October 2009. In our £6.2 billion Private Equity portfolio, buyout funds generated strong positive cash flows, with managers taking advantage of buoyant public equity markets to Figure 3 sell down positions in listed stocks. Our Volatility (standard deviation) of returns (%) (VC) managers are taking advantage of readily available private funding to run positions for longer, with the objective of building bigger, more dominant businesses 25 away from the gaze of public markets. Our property assets of just over £2.2 billion are 20 concentrated in the UK, and therefore susceptible to any weakness related to Brexit. Although the 15 residential market was weak, this was more than made up by strength in our operating asset backed 10 businesses, taking the composite as a whole into slightly positive territory.

Annualised volatility % 5 Outlook Asset owners like Wellcome have been very fortunate 0 in the past few years in having major Central Banks underpinning global asset prices, by buying bonds to Sept Sept Sept Sept Sept 1996 2001 2006 2011 2017 drive down the risk free rate. More recently, improving economic conditions have helped corporate earnings Year to grow rapidly enough to provide a further boost Wellcome rolling 3 years Global Equities rolling 3 years to markets. £ used to 30 September 2009. Blended £/US$ from 1 October 2009. We do not expect this fortunate coincidence of circumstances to persist indefinitely. Asset valuations

19 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Review of Investment Activities (continued) Investment Portfolio are at levels that leave little room for world of somewhat higher interest rates, change. Examples include increasing disappointment. Many economies are lower returns from investment assets, and use of AI and machine learning, mass operating close enough to full capacity that probably higher volatility than we have seen adoption of robotics and industrial monetary conditions might start to tighten in recent years. Our response has been to automation, the growing importance of soon. Lower cash levels among investors, concentrate on assets and partnerships genomics in healthcare or the emergence slower corporate buybacks, and ultra-low in which we have most confidence. We of a massive number of relatively wealthy volatility are all warning signs. It also are spending far more time focusing on consumers across many parts of the remains to be seen what the longer term stewardship of the assets that we do own, Emerging World. Through our long-term consequences will be of the sheer volume than worrying about those we do not. outlook and our extensive investments in of passive money in the market. There are Venture Capital and Emerging Markets, Although the pace of disruption and of now many more equity indices than stocks. we aim to capture some of the economic economic change will not slow, there are benefit of these trends. Given these trends, we are preparing for a opportunities as well as threats from

Figure 4 Evolution of asset allocation (%)

8.2 9.3 3.2 3.9 3.5 3.6 3.9 3.4 3.5 8.7 7.5 10.7 10.6 10.2 10.3 12.9 10.2 11.9 9.2 3.6 11.8 11.1 10.7 17.2 11.8 11.5 16.1 23.3 24.2 25.8 25.2 27.6 23.9 27.8 27.5 19.3 69.2

54.4 46.9 49.4 48.0 50.5 38.4 41.3 42.1

Sept 05 Sept 08 Sept 11 Sept 12 Sept 13 Sept 14 Sept 15 Sept 16 Sept 17 Public markets Private equity Hedge funds Property Cash The percentages exclude foreign exchange overlays. Public markets includes public equities, equity index and commodity futures and options.

Figure 5 Evolution of asset allocation, directly and indirectly managed (%)

5.4 9.3 3.2 3.9 3.5 3.3 3.9 3.4 3.5

44.7 51.3 60.8 55.1 51.2 63.6 67.7 86.7 82.5

51.8 41.6 45.5 45.3 35.6 29.3 32.7

6.9 10.5 Sept 05 Sept 08 Sept 11 Sept 12 Sept 13 Sept 14 Sept 15 Sept 16 Sept 17 Direct Indirect Cash The percentages exclude foreign exchange overlays.

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Review of Investment Activities (continued) Investment Portfolio

Figure 6 Investment asset allocation as at 30 September

Change in allocation Sept 2016 to 2017 2017 2017 2016 2015 Sept 2017 £m US$m % % % % Total public equities 13,487 18,095 52.3 50.5 48.0 1.8 Global 10,049 13,483 39.0 36.2 34.6 2.8 Developed world 981 1,316 3.8 4.9 5.1 (1.1) Growth markets 2,457 3,296 9.5 9.4 8.4 0.1

Equity index futures and options* 233 312 0.9 - - 0.9 Commodity futures and options* 310 416 1.2 - - 1.2

Hedge funds 2,368 3,177 9.2 10.7 11.8 (1.5) Equity long/short 1,503 2,016 5.8 6.5 6.2 (0.7) Directional hedge funds 360 483 1.4 1.9 2.4 (0.5) Non Directional hedge funds 505 678 2.0 2.3 3.2 (0.3)

Cash 893 1,198 3.5 3.4 3.9 0.1

Private equity 6,238 8,370 24.2 25.2 23.9 (1.0) Buyout funds 1,197 1,606 4.6 5.1 5.5 (0.5) Specialist funds 1,289 1,730 5.0 5.1 3.9 (0.1) Multi asset partnerships 690 925 2.7 3.1 2.9 (0.4) Venture funds 2,203 2,956 8.5 8.8 8.9 (0.3) Directs 859 1,153 3.4 3.1 2.7 0.3

Property 2,244 3,011 8.7 10.2 12.9 (1.5)

Net overlay assets* (13) (18) - - 0.1 -

Total assets 25,760 34,561 - - - -

Bond liabilities (2,041) (2,738) - - - - Other liabilities (531) (713) - - - - Total liabilities (2,572) (3,451) - - - -

Total assets net of all liabilities 23,188 31,110 - - - -

*As of September 2017, the equity and commodity derivatives have been shown separately as notional exposures, with futures offsets included in other liabilities. Net overlay assets comprise foreign exchange overlays and the related cash collateral amounts due to counterparties.

21 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Review of Investment Activities (continued) Investment Portfolio

Public Equity Figure 7 In 2016/17, Global Equity Markets (MSCI AC World) Public equity net returns (%) returned 15.5% in Sterling or 19.3% in US Dollars. Period to 30 September 2017 All major markets saw decent gains in Sterling, but European equities led the way, returning 26.2% Annualised return in £ (%) (Eurostoxx50). Emerging Markets equities returned 1 year 3 years 5 years 19.0% (MSCI EMF), US equities rose 14.9% (S&P Global 21.1 16.0 16.1 500), and Japan 12.6% (Topix). The UK trailed behind other markets but still delivered a return Developed world 19.0 16.0 18.6 of 11.2% (FTSE100). Growth markets 13.8 11.3 10.3 Total public equities 19.6 15.3 15.5 Our total public equity portfolio had a strong year (Figure 7) delivering a 19.6% return, 4.1% ahead of MSCI AC World 15.5 15.1 15.0 global equities. This is not a level of outperformance (alpha) we expect to be able to sustain – since inception, the equity portfolio has outperformed Figure 8 global equities by 0.7% a year on average – but our Direct public equities IRR by strategy (£) (%) focus is in any case on absolute return. The Internal Inception to 30 September 2017 Rate of Return (IRR) of our equity portfolio since mid 2008 (when we started owning public stocks directly 2017 rather than running a purely outsourced portfolio) has Value £m IRR (%) been 11.4% (Figure 8). After such a strong period of Mega cap basket (inception Sept 2008) 6,091 14.9 returns it is not surprising that our forward looking return expectations have come down sharply. Optionality basket (inception July 2008)* 2,460 15.0 Growth basket (inception Dec 2009) 536 12.3 Our internal portfolios in developed markets had Total public equities 13,487 11.4 a good year. The Megacap Basket (MCB) has been running since September 2008. We continued to *Returns adjusted for private purchases. hold the same 27 stocks throughout the year. The MCB had another strong year, returning 19.2%, Figure 9 taking the IRR since inception to 14.9%. Public equity allocations by strategy (£) The Optionality Basket (OB) also had a good year, As at 30 September delivering a return of 29.0%. It includes a global selection of stocks, each separately chosen on the 2017 2016 2015 2014 2013 basis that it offers the prospect of attractive risk- Value Value Value Value Value adjusted returns. There were strong contributions £m £m £m £m £m from a range of holdings, including Chinese Indirectly managed 3,741 4,220 3,540 4,073 4,044 ecommerce giant Alibaba, Morgan Stanley, JD.com, Global 1,498 1,342 1,106 645 531 Vonovia and Rolls Royce. We added one position Developed markets 724 1,139 1,025 1,866 1,953 during the year in French insurance company AXA, Growth markets 1,519 1,739 1,409 1,562 1,560 taking advantage of market uncertainty around the Directly managed 9,746 7,442 6,123 5,474 4,045 presidential election. The other significant change was to sell our position in Bank United in the US, Mega cap basket 6,091 5,213 4,055 3,883 3,352 where we had invested as part of the recapitalisation Optionality basket 2,460 1,799 1,789 1,379 612 process in 2009. Growth basket 536 430 279 211 81 Other 659 - - - Total 13,487 11,662 9,664 9,546 8,089

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Review of Investment Activities (continued) Investment Portfolio

In Emerging Markets, the internally managed Growth Figure 10 Basket (GB) delivered a solid absolute return of Direct public equity holdings > US$150m 12.4%. However, the deliberate bias to high quality As at 30 September 2017 consumer and banking franchises meant that it lagged the broad market, which was led by cyclical Return on Total Total Cost GBP stocks and markets. We are still building this basket, Rank Rank Value Value (Inception with the principal addition of Hong Kong based 2017 2016 £m US$m dates differ) pan-Asian insurer AIA during this year. 1 1 Vonovia* 429 575 157% We terminated two external equity mandates during 2 4 Alibaba* 419 562 527% the year, and reinvested the proceeds into passive 3 2 Apple 403 540 702% products to maintain our underlying exposure. Our 4 6 Bank Of America 378 507 143% remaining nine outsourced managers have been 5 3 Microsoft 361 485 270% running money for us for a combined 135 years and 6 7 JPMorgan Chase 335 450 215% an average of 15 years each. Some of them have had performance challenges recently, but over the 7 12 Morgan Stanley 304 408 139% past year things have improved, with four out of our 8 5 Royal Dutch Shell 304 407 73% five managers in developed markets, and two out 9 33 Banco Santander 286 384 56% of the four in Emerging Markets outperforming their 10 N/A AXA 271 363 12% respective benchmarks. We continue to evaluate 11 9 Siemens 266 356 108% the relative merits of running money internally and externally, and the value of active as opposed to 12 8 Facebook 258 346 245% passive strategies. 13 11 Alphabet 258 346 353% 14 20 JD.com* 257 345 121% German real estate company Vonovia remained our largest single direct equity position at financial year 15 15 Berkshire Hathaway 256 344 157% end (Figure 10). All 35 directly owned positions in 16 14 HSBC 251 336 72% excess of US$150m have delivered positive returns, 17 25 Unilever 246 330 210% 22 of which have returned in excess of 100% since 18 10 Nestle 228 306 118% inception. The portfolio remains cash generative. 19 16 Toyota 224 301 104% The MCB has returned roughly a quarter of its total cost in cash dividends since inception. 20 18 Merlin 223 299 20% 21 35 Rolls-Royce 200 268 4% 22 17 BP 199 266 42% 23 19 Marks & Spencer 194 261 97% 24 32 Novartis 179 240 127% 25 21 Pepsico 175 234 151% 26 24 Cisco Systems 171 229 129% 27 13 Anheuser-Busch 171 229 168% 28 22 Procter & Gamble 170 228 85% 29 31 Roche 169 226 123% 30 28 Vodafone 167 224 52% 31 29 Johnson & Johnson 165 221 180% 32 27 Sumitomo Mitsui FG 143 192 26% 33 23 General Electric 135 182 102% 34 34 Schlumberger 130 175 47% 35 26 Rio Tinto Plc 113 151 67%

*Return on cost has been adjusted for when the asset was held directly as a private company.

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Review of Investment Activities (continued) Investment Portfolio

Hedge Funds Figure 11 Our £2.4 billion hedge fund portfolio had a good year Hedge fund net returns (%) (Figure 11). Correlations between stocks have fallen Period to 30 September 2017 from historically high levels, which has recently made Annualised return in US$ (%) it easier for both long/short hedge funds and active long only managers to generate alpha. 1 year 3 years 5 years 10 years The proportion of our portfolio invested in hedge Directional 11.7 2.7 5.6 4.1 funds has fallen to 9.2% from its 2008 peak of Non Directional 6.8 1.1 4.0 3.7 23.3%. As market valuations become more stretched Equity Long/Short 15.5 5.4 9.2 5.5 and we move closer to an environment where Total Hedge funds 13.2 4.0 7.4 4.8 interest rates may start to move up meaningfully, MSCI AC World 19.3 8.0 10.8 4.4 we ought to see more opportunities for skilled managers. However, manager selection remains key, as many hedge funds tend to exchange performance for asset gathering as they mature. Many of the best Figure 12 funds (including most of ours) remain closed to new Hedge fund investments by strategy (£) money from investors. As at 30 September We are also conscious of the fact that the hedge fund community has struggled with succession 2017 2016 2015 2014 2013 planning, and that decision making is usually Value Value Value Value Value £m £m £m £m highly centralised, which creates key person risk. £m We are watching closely to see how our hedge fund Directional 360 435 492 534 605 partners handle generational transition. Hedge fund Non Directional 505 533 633 558 506 management appears to us to be an idiosyncratic Equity Long/Short 1,503 1,495 1,251 1,073 929 cottage industry rather than an asset class to which Total Hedge funds 2,368 2,463 2,376 2,165 2,040 large scale funds should be allocated.

Private Equity The value of our private equity (PE) investments in Figure 13 buyout funds, venture capital funds, direct private Private equity fund net returns (multiples) investments and Multi Asset Partnerships has risen Inception to 30 September 2017 to £6.2 billion. PE has done well, but still fallen to 24.2% of the portfolio because of the strength Net Asset Total of the performance in our public equity assets. Drawn Realised Value Value to These assets are primarily located outside of the (£m) (£m) (£m) Drawn UK, therefore, Sterling returns have benefited from Buyouts 4,137 5,056 1,197 1.51x historical periods of Sterling weakness. Specialist 2,431 2,276 1,289 1.47x Our buyout and VC funds have delivered a significant Venture 1,960 2,220 1,774 2.04x premium over time in return for the illiquidity we need Healthcare and Healthcare/ 1,430 1,761 429 1.53x to take on in the asset class (Figures 14a and 14b). Venture This PE premium has attracted new money, which All Private equity funds <=2010 7,914 10,973 2,000 1.64x is pushing up entry valuations for new investments. All Private equity funds >=2011 2,044 340 2,689 1.48x Over time we believe that returns from PE will All Private equity funds total 9,958 11,313 4,689 1.61x decline, but we remain confident that in an environment where returns to all equity assets Total Value equals Realised plus Net Asset Value. Funds of vintage years are likely to be lower, our managers will be able 2010 and earlier have generally completed their investments. to deliver a decent illiquidity premium.

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Review of Investment Activities (continued) Investment Portfolio

Large buyouts again led the way in 2016/17, Figure 14a and delivered a one year return comfortably ahead Private equity fund net returns (%) of public markets. Our buyout managers have Period to 30 September 2017 been taking advantage of market strength to sell down positions in public stocks in their funds Annualised return in US$ (%) and distribute the proceeds back to investors. 1 year 3 years 5 years 10 years Net distributions from all buyout funds over Large Buyouts 25.6 14.3 15.3 8.8 the 12 months to 30 September 2017 totalled £221 million. Mid Buyouts 16.6 9.9 12.1 N/A Specialist 22.4 8.9 10.4 N/A We have become increasingly selective in re-committing to PE funds. We focus on those Venture 9.5 15.4 18.5 11.0 managers who have a demonstrated ability to MSCI AC World 19.3 8.0 10.8 4.4 make money by effecting real change at businesses rather than just through financial engineering. Figure 14b While buyout funds have been returning cash, Private equity fund net returns (%) distributions from VC firms have slowed down Period to 30 September 2017 significantly. Many technology companies have raised large amounts of private funding, so founders are not Annualised return in £ (%) feeling pressured into exposing themselves to the 1 year 3 years 5 years 10 years scrutiny of public markets. With new sources of private Large Buyouts 21.6 21.8 19.6 13.4 funding available from non-traditional investors in the Mid Buyouts 12.9 17.0 16.4 N/A VC space, this trend could go on for a long time. Specialist 18.5 16.0 14.6 N/A Net distributions from our VC portfolio (-£31 million) Venture 6.0 22.9 23.0 15.8 were negative, which is surprising given the maturity of the funds. We have therefore recast our forward MSCI AC World 15.5 15.1 15.0 8.9 looking expectations of cash flows to reflect a more conservative five-year view of VC realisations. This Figure 15 does not affect our view of eventual value creation Private equity investment by strategy (£) in these funds. There is likely to be significant latent As at 30 September value in the portfolio from the fact that our VCs are holding key positions at a substantial discount to 2017 2016 2015 2014 2013 most recent funding rounds. Value Value Value Value Value £m £m £m £m £m Buyouts 1,197 1,176 1,115 1,283 1,226 Specialist 1,289 1,187 775 717 895 Venture 2,203 2,043 1,791 1,683 1,352 Direct 859 716 535 733 786 Total 5,548 5,122 4,216 4,416 4,259

Figure 16 Multi-Asset Partnerships (MAPs) Period to 30 September 2017

Annualised Return Value £ (%) US$ (%) £m MAPs (inception Jan 2013) 7.9 3.6 690

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Property including Asset Backed Figure 17 Operating Companies Property net returns (%) Our property holdings have a significant bias towards Period to 30 September 2017 UK assets. Continued uncertainty towards Brexit, exacerbated by the inconclusive results of the Annualised return in £ (%) General Election in June, have put a dampener on 1 year 3 years 5 years 10 years physical assets in the UK. Non-Residential property 9.8 7.2 5.8 1.2 In South Kensington, although the super-prime Residential property 0.5 5.0 9.9 9.0 residential estate market was quite weak, we only Property 4.4 6.2 9.4 6.1 suffered a marginal decline in value. Our other residential assets in the Southeast of England, and in our London serviced apartments also saw Figure 18 slight declines. Property investments by strategy (£) As at 30 September However these negative movements were more than counter-balanced by value accretion in a number of our asset backed operating businesses. 2017 2016 2015 2014 2013 Value Value Value Value Value Of particular note was the performance at our £m £m £m £m £m student accommodation business, iQ. The valuation Non-Residential property 1,002 1,076 1,319 795 655 of our equity holding increased and we received a Residential property 1,242 1,279 1,272 1,216 1,101 significant return of capital. Total 2,244 2,355 2,591 2,011 1,756 There were also valuation gains at our joint venture budget hotel company (Point A Hotels, formerly Residential property includes the South Kensington estate, other rented Tune Hotels), and our wholly owned leisure marina residential properties and serviced apartments. business, Premier Marinas. Both companies have seen solid growth in their underlying businesses despite a challenging environment. The value of our farming business, , was effectively flat. As announced, contract farming options are being investigated. Over the long-term we are confident that the value of land in the UK will be underpinned by supply constraints and strong demand, but in the short term this is a challenging business. The net impact of these moving parts has been a return of 4.4% from our property assets (Figure 17). We are watching closely to see whether political uncertainty throws up interesting opportunities in this area.

Currency, Regional and Sectoral Overview In the light of the extreme volatility of Sterling in recent years, and the increasingly international profile of Wellcome as an organisation, we have moved away from an explicit Sterling-based currency benchmark. Until October 2009, we followed a 100% Sterling benchmark, thereafter we moved to a 50:50 neutral position between US Dollars and Sterling. During this financial year the constraint of a neutral currency position of 50:50 was lifted, together with the need for a minimum 25% position in Sterling and

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Review of Investment Activities (continued) Investment Portfolio

US Dollars. We continue to hold a minimum 15% Figure 19 denominated in Sterling. Currency allocation (net of currency forwards) (%) The practical impact of this change has been to As of 30 September 2017 remove the need to hold substantial FX hedges into Sterling, which had been creating cash losses as the US Dollar & linked currencies ...... 52.6% currency weakened. We still measure performance in Sterling, US Dollars and a 50:50 blend of the two, Total Asia ...... 10.1% but any currency overlay positions are now taken Total Europe ...... 10.9% purely on their merits. Total Commodity linked currencies .... 4.5% Our currency book currently includes positions in Other ...... 0.9% the Euro (which was very undervalued in 2016 on a fundamental basis), and various Emerging Market Pound Sterling ..... 21.0% currencies, which are beneficiaries of better global growth. We have hedged some of our substantial underlying exposure to Japanese and Chinese assets. Some legacy long-term Sterling currency positions have also been retained. Figure 20 Public and Private Equity Regional Exposure (%) The net impact of these changes has been to reduce As of 30 September 2017 our Sterling exposure to 21.0% (Figure 19), and to more than double our Europe ex-UK currency exposure Americas ...... 47% to 10.9%. US Dollar exposure has been cut to 52.6% Europe ...... 28% from 58.1%. The balance is in a range of Asian, Asia/ Pacific...... 21% Emerging Market and commodity linked currencies. Middle East Underlying public and private equity exposures have not & Other ...... 2% changed much (Figure 20). US markets were boosted Africa ...... 2% after President Trump’s election by hopes for tax reform and reflationary fiscal spending. Euphoria has since died down as both have become embroiled in the realities of the US political system. The US remains a dynamic, innovative economy with deep and liquid financial markets, hence our large weighting. Exposure to more cyclical areas of the global economy, such as Europe and Emerging Markets, has slightly increased. Figure 21 Public and Private Equity Sectoral Exposure (%) We have a large weighting in technology companies As of 30 September 2017 (Figure 21). In addition to holdings in public companies like Alphabet, Facebook, Microsoft and Info Tech ...... 24% Alibaba, we have significant exposure to technology Financials ...... 21% through VC and other private investments. We see Cons Disc ...... 13% no evidence that the pace of innovation is slowing Cons Staples ...... 8% down, although market prices of innovative companies may be catching up with their potential. Health Care ...... 8% Energy ...... 8% The large financial sector weighting in part reflects Industrials ...... 7% strong performance of existing positions on faster Materials ...... 4% economic growth. Even after this rally, bank stocks remain cheap compared to pre-crisis Real Estate ...... 4% levels, reflecting a tougher regulatory environment. Telecoms ...... 2% We slightly increased our holdings over the year Utilities ...... 1% by adding to positions in the insurance sector.

27 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Review of Investment Activities (continued) Social Investments – Mixed Motive Investment

The Wellcome Group holds a 37% Background Performance investment in Syncona Limited which In 2012, the Trust set up the Syncona The value of the Trust’s investment in is considered to be a Mixed Motive LLP group as an independent investment Syncona Limited at 30 September 2017 Investment. The investment is held at subsidiary group focused on the health and was £457 million. The cost of the fair value. It is managed by the Chief biotechnology sectors. The organisation investment was £319 million. Wellcome Financial Officer on behalf of the was created in response to the lack of purchased its shares for 131.5p per share Executive Leadership Team. ‘patient capital’ in life science in the United and the share price at 30 September Kingdom, with a long-term vision of 2017 was 187.8p. This represented a building sustainable life science businesses premium of 20% to net asset value. around highly innovative academic science. Syncona paid a dividend of 2.3p per It was managed separately to the rest of the share in August 2017. Trust’s investment portfolio undertaking. Performance has been driven by the On 18 December 2016, the group sold continued progress in the funds portfolio, its 100% interest in the Syncona LLP an increase in the valuation of Blue group to BACIT Limited and purchased Earth Diagnostics Limited (BED) and additional shares at market value. Autolus Limited, and a Nasdaq listing Following the transaction, the Group of Nightstar Therapeutics plc. holds a 37% share in BACIT Limited. Subsequent to the transaction, BACIT BED has commenced sales of Axumin in Limited was renamed Syncona Limited. the United States and has now received Syncona’s business is made up of a fund approval from the European Medicines investment portfolio and a life science Agency for sales in Europe. Axumin investment company. It takes a long term targets and images prostate cancer cells. approach to investments and the structure Autolus is developing first or best in class enables it to access a deep pool of capital CAR-T treatments with curative potential when the right life science opportunities in cancer and completed an investor arise, while generating attractive returns financing round in September 2017. for shareholders on an ongoing basis. Nightstar is positioned to become a Over time, it intends to become primarily global leader in gene therapy for the a life science investment company. treatment of inherited retinal diseases. Further details are provided in note 16(d) Syncona donates 0.3% of its net asset and note 22. value each year to charity.

28 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Financial Review

Total funds of the Charity (£m)

25,000

21,877

19,562 20,000

16,907 16,737 15,041 15,000

10,000 2013 2014 2015 2016 2017

Total Gross Spend on Charitable Activities (£m)

1,400 1,221.4 1,200 155.5

994.7 107.0 1,000 961.1 20.3 66.3 88.4 78.8 73.0 800 772.9 68.0 727.7 86.1 Priority Areas 61.0 45.5 65.2 Strategy 57.1 600 Innovations 781.2 Culture & Society 685.5 400 Science 619.5 552.0 719.4 Support 200

74.6 83.8 89.3 0 46.9 53.4 2013 2014 2015 2016 2017

An overview of the Charitable Activities is provided on pages 30–31.

The figures from 2015 (the year of transition to FRS102) onwards exclude the adjustment for the discounting of grants.

The figures from 2016 onwards also exclude the foreign exchange revaluation of the grant liability.

29 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Financial Review (continued)

Overview Overview In 2016/17 our Net income before tax for the year ended 30 September 2017 totalled £2,205 million (2016: £2,689 million) – slightly lower than the previous 2017 2016 Change year. However, this still reflects another £m £m £m period of very strong performance from Investment activity our investment portfolio. Income 386 354 32 Our charitable expenditure increased Expenditure (146) (178) 32 by 14% to £1,134 million (2016: £992 Investment gain/(loss) 3,060 3,469 (409) million). This increase is in line with our 3,300 3,645 (345) ambitious plans and reflects the strength Charitable activity of our portfolio, allowing funding of a broad range of activities in line with our Income 39 36 3 charitable objectives. Expenditure (1,134) (992) (142) Investment activity (1,095) (956) (139) Our Investment activity generated net Net income before tax 2,205 2,689 (484) income of £3,300 million (2016: £3,645 million); this includes £263 million arising Net Funds from the disposal of Syncona LLP group at 30 September 2017 and the subsequent growth in value of our stake in Syncona Limited. Strong 2017 2016 Change investment gains were delivered across all £m £m £m the main investment asset classes: a full Fixed assets 435 459 (24) commentary is provided on pages 18–28. Investment assets 26,184 23,661 2,523 Net Funds Net current assets/(liabilities) (1,127) (1,038) (89) The Net funds of the Group increased by Long term liabilities (3,615) (3,520) (95) £2,315 million (12%) to £21,877 million Net funds 21,877 19,562 2,315 (2016: £19,562 million). The increase is dominated by the growth in the value of our investment assets, based on the Annual Charitable Expenditure returns noted above, with a very small offset from the liability associated with for the year ended 30 September 2017 our growing grant commitments. 2017 2016 Change Charitable activity £m £m £m Income Science 832 723 109 Income from grants and PRI activity was Culture and society 112 110 2 £39 million (2016: £36 million); this in part Innovations 116 82 34 reflects grant income received by the Priority areas 162 - 162 Wellcome Trust Sanger Institute. Strategy - 80 (80) Expenditure Gross spend on charitable activity 1,221 995 226 Charitable expenditure grew to £1,134 million (2016: £992 million): growth was Present value adjustment on grant liability (65) (41) (24) dominated by increasing levels of awards Foreign exchange revaluation of grant liability (22) 39 (61) in Science and the launch of three new Total 1,134 992 141 priority areas. This year we have separately identified expenditure on Priority areas, and activity previously included within Strategy has been reclassified into other areas following internal reorganisation. 30 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Financial Review (continued)

Expenditure incurred supported the Priority Areas – expenditure of (“GRL”). Researchers use genome following key areas of activity: £162 million (2016: £nil) included: sequences to advance understanding • Vaccines – a commitment of £82 million of the biology of humans and pathogens Science – expenditure increased to fund the Coalition for Epidemic in order to improve human health. to £832 million (2016: £723 million) Preparedness Innovations (“CEPI”). and included: Charitable activities represent funding • Investigator Awards of £94 million. • Drug Resistant Infections – £30 million that we commit to, which is recognised of funding for Combating Antibiotic in the year in which the grant is awarded. • Fellowships and studentships of Resistant Bacteria Biopharmaceutical However, payment in cash of many of these £311 million, including a £155 million Accelerator (“CARB-X”), a global commitments will be made over a number commitment to Science PhD partnership set up to accelerate of years and charitable cash payments in programmes over the next 5 years. antibacterial innovation. any one year will include amounts relating to grants awarded in prior years. • £27 million for the renewal of the • Our Planet, Our Health – funding of Malawi-Liverpool-Wellcome Trust £30 million for research partnerships. Clinical Research Programme. Financial Planning • £106 million of funding for the Expenditure Policy In preparing our Financial Plan for 2016/17, Wellcome Trust Sanger Institute & Management we considered the forthcoming five year period and applied our historic policy of (via our wholly owned subsidiary GRL). Our objective when setting the annual grant committing 4.7% of the three-year weighted commitment budget is to preserve the Culture & Society – expenditure average of investment asset values. This value of Wellcome’s investment portfolio so increased to £112 million plan was used to create an annual budget that the purchasing power of our charitable (2016: £110 million) and included: which was monitored against unexpected expenditure is maintained over time, • Wellcome Collection expenditure economic or market events. while minimising short-term volatility in of £17 million. commitments caused by changes in asset A revised methodology for defining our • Humanities & Social Science expenditure values. We also aim to ensure that we fund future charitable expenditure plans was of £24 million largely made up of only the best research and that this is approved by the Board of Governors in Investigator & Collaborative awards. achieved in an efficient manner. June 2017: this new approach applied from October 2017. The new methodology • Public Engagement expenditure We support research that addresses is designed to provide greater resilience of £21 million. fundamental health challenges of our and stability for the bulk of our funding. time, across discovery science, medical Innovations – expenditure increased innovation, and the humanities and social The Financial Plan is prepared in line with to £116 million (2016: £82 million) sciences. We develop leaders, advocate the following funding approach principles: and included: policy change and help to engage the • Provide sustainable and predictable • Final funding rounds in Seeding Drug public with research. We also identify Discovery (£10 million), Translation funding for Wellcome’s core activity, strategic priorities with clear targets for so this becomes less vulnerable to Fund (£10 million) and legacy schemes how to make a difference. (£24 million), as Innovations transition market volatility. to their new funding strategy/approach. Grant funding is usually channelled • Draw sustainably on any growth in through universities or similar institutions the portfolio to support substantial, • £10 million awarded to the Global which take responsibility for grant time-limited initiatives when the right Health Innovative Technology Fund. administration for individual academic opportunities arise. researchers with only a limited number of Across Wellcome additional funding • As a minimum, preserve the value of the small-scale awards being made directly included £124 million for Wellcome UK portfolio at £20 billion in today’s money to individuals. Centres following an open competition so that we do not jeopardise the future completed in late 2016 (included in We also fund work on the Wellcome by committing too much today; but activities listed above). Genome Campus where our own equally recognise that Wellcome’s research centre, the Wellcome Trust mission is to deploy our funds to Sanger Institute, is based, channelling improve health through science and support through a wholly-owned great ideas rather than building an subsidiary, Genome Research Limited ever-larger portfolio.

31 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Financial Review (continued)

As part of this new approach we continue Reserves Policy discussed in the Review of Investment to make an assessment of future Our reserves policy is directly linked to Activities on pages 18–28. investment returns, as well as future our expenditure policy, which is detailed The Programme related investments are cashflows, and this is reviewed on an above. Historically, rather than setting a managed separately by the Innovations annual basis. The 2018 planning cycle, target absolute minimum or maximum team whose activities are described on will therefore include the slightly more level of unrestricted reserves, the policy pages 9 and 95. muted expectations of long-term has been to set spending at a level Our response to the FRC UK Stewardship investment returns noted in the Review intended to deliver our charitable mission Code, together with further details of of Investment Activities, but this is not today while preserving the investment our investment policy, is available on anticipated to have a significant impact base to provide sustainable increases Wellcome’s website (wellcome.ac.uk). We on our current plans. in annual expenditure into the future. support the investment industry’s continued The core research and other activities we The reserve balance at 30 September efforts to strengthen the role played deliver today through Science, Culture 2017 was £21,877 million (2016: by institutional investors in corporate and Society and Innovations will be £19,562 million). Our expenditure policy governance and we review our statement supported with an expenditure level, in is intended to ensure that the level of and our investment policy regularly and line with current commitment, of around reserves is maintained. The new funding update them where necessary. £900 million a year on average over a five methodology has now defined a minimum level for the net investment portfolio to be year period, which we intend to increase Pensions annually with inflation. This funding will maintained over the medium term. This not be tied so closely to the performance level will be subject to annual review by The Group provides employees with of our investment portfolio, which means the Board of Governors. the opportunity to participate in either defined benefit or defined contribution we will have more stability and The reserves are mainly unrestricted, predictability in our support. pension schemes. Since April 2016, but certain awards made to the Wellcome new employees have joined the defined In addition, we plan to fund the Priority Trust’s subsidiary undertaking, GRL, contribution scheme. areas, and potentially other large-scale by other funders are subject to specific The combined accounting deficit for both and high-impact activities, with an initial conditions imposed by the donors and Group defined benefit pension schemes one-off budget of £865 million for the are therefore restricted in their use. at 30 September 2017 amounted to next five years. This will support the These amounted to £21 million at the £248 million (2016: £379 million). The current priority areas, with an additional end of 2017 (2016: £8 million). deficit has decreased principally due £500 million to spend on a limited to strong asset returns against a stable number of new initiatives with potential Investment Policy backdrop of assumptions supporting the to transform specific health or scientific and Performance liability assessment. issues. We will add to this funding Our assets are invested in accordance The defined benefit pension schemes only when the investment portfolio with the wide investment powers set are required to have triennial actuarial performance is sufficiently strong, subject out in the Wellcome Trust’s Constitution valuations, which are then updated in an to annual review. This approach will and within its investment policy. The interim valuation each year at the balance provide increased resilience to market investment policy is reviewed periodically sheet date. As at 30 September 2017, volatility: if markets perform poorly, we by the Board of Governors. We invest the deficit of the GRL scheme using will react initially by not funding these globally and across a very broad range actuarial valuation assumptions was circa additional projects rather than reducing of assets and strategies. It is our policy £16 million; the Wellcome Trust scheme our core funding. not to invest in companies that derive was in surplus on this basis. A rolling material turnover or profit from tobacco deficit recovery plan to address the or tobacco-related products. We continue actuarial deficit over a period of five years to engage well with our directly owned, is in place for both schemes and will be public and material private equity deployed as required. holdings in terms of their sustainability and continued licence to operate. The More detail on the pension schemes is performance of the investments is given in note 11(e) Retirement benefits.

32 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Financial Review (continued)

Going Concern In view of the policies discussed above, there is a reasonable expectation and after considering the 2017/18 budget that there are adequate resources, and longer-term plans, the cash flows including the strength to operate and and the highly liquid nature of a meet the liabilities of the Group as substantial portion of Wellcome’s they fall due over the period of their investment assets, the Trustee is satisfied assessment and for the foreseeable that it is appropriate to adopt the going future. This assessment has been in line concern basis in preparing the Financial with the Expenditure policy described Statements of both the Wellcome Trust above and after considering the and the Group. The activity and significant risks laid out in the Risk performance of the significant Management section in the Trustee’s subsidiaries is disclosed in note 23. Report as well as the significant accounting estimates and judgements The Board of Governors have assessed in note 2. the viability of Wellcome Trust and its subsidiaries over the five years to September 2022. They consider the affordability of the financial plan as part of their review and have concluded that

33 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Structure and Governance

The Wellcome Trust (“Wellcome”) is an science, business and policy. The Board agreed with the Governors, are independent global charitable trust. It was considers each of the Governors to be disseminated and all necessary actions created in 1936 by the will of Sir Henry independent in character and judgement taken to uphold the vision and deliver Wellcome and is now governed by its and manages any relationships or the objectives. Constitution, which was established in circumstances that are likely to affect, An Operational Sub-Group of the ELT February 2001 by a scheme of the Charity or could appear to affect, the Governors’ was created in the first quarter of the Commission and has been subsequently judgement. Governors are appointed for 2017 calendar year. Other than for certain amended. terms of four years, with an extension key governance areas and matters having of three years on mutual agreement, Wellcome is a charity registered in a material impact, the Group has the full and a further three-year term in England and Wales (registration number delegated authority of ELT in relation exceptional circumstances. Wellcome 210183) under the Charities Act 2011. to all operational matters affecting undertakes a comprehensive induction Wellcome, and implementing policy The Wellcome Trust Group comprises programme for all new Governors and agreed by the Board of Governors or Wellcome and its subsidiary undertakings. training is available as required. ELT in relation to them. Principles of governance The Chair of the Board is Eliza Manningham-Buller, an independent, Alyson Fox, Mark Henderson, With regard to governance, Wellcome takes crossbench peer in the House of Lords. Chonnettia Jones and James Thomas into account its charitable status, the nature She joined Wellcome as a Governor in joined the ELT in October 2016 and of its activities and its risk profile, and has 2008 and was appointed Chair in 2015. Ed Whiting joined in June 2017. regard to the principles of good governance She is also President of Chatham House. and best practice such as those set out in In December 2016, Jim Smith was the UK Corporate Governance Code and Richard Hynes stepped down in appointed as Director of Science. In the Charity Governance Code. December 2016 after serving as a October 2017, Danny Truell stepped Governor for 10 years. Kay Davies will down after 12 years as Chief Investment The Trustee and step down in January 2018 after serving Officer and more recently Managing the Board of Governors on the Board for 10 years, including four Partner. He is now Emeritus Partner. years as Deputy Chair. The new Deputy Nicholas Moakes has been appointed as The sole Trustee of Wellcome is The Chair will be Mike Ferguson, who joined Managing Partner and Chief Investment Wellcome Trust Limited (the “Trustee”), a the Board in 2012. Officer, and Peter Pereira Gray has been company limited by guarantee (registration appointed as Managing Partner and Chief An evaluation of the performance of the number 2711000), whose registered office Executive Officer, Investments. is The Gibbs Building, 215 Euston Road, Board of Governors is currently being London NW1 2BE. The Trustee is undertaken by an independent specialist, governed by its memorandum and articles Ffion Hague Independent Board Evaluation. Statement of the Trustee’s of association. The Trustee’s directors responsibilities (known as Governors), the Company Executive Leadership Team The Trustee is responsible for preparing Secretary of the Trustee, the Executive The ELT, chaired by Wellcome’s the Trustee’s Annual Report and Financial Leadership Team and other administrative Director, reports directly to the Board Statements in accordance with applicable details are shown on pages 117 to 119. of Governors. It is responsible for the law and UK Accounting Standards (UK day-to-day management of Wellcome’s Generally Accepted Accounting Practice), The Board of Governors sets strategy, operations and provides advice to the including FRS 102 ‘The Financial decides priorities, maintains a framework Governors and the Director with regard to Reporting Standard applicable in the for accountability, allocates budgets, strategy, planning, operational or policy UK and Republic of Ireland’. The law makes strategic funding decisions and matters, the delivery of objectives and applicable to charities in England and monitors progress. During 2016/17, the issues arising from the specific functional Wales requires the Trustee to prepare Board met six times, including a two-day areas for which its members are Financial Statements for each financial residential strategic review meeting, and responsible. It provides leadership across year which give a true and fair view of had five private meetings without the the organisation in support of the overall the state of affairs of Wellcome and the Executive Leadership Team (“ELT”). direction given by the Director and Group and of the incoming resources Members of the Board of Governors are ensures that the vision and strategic and application of resources of Wellcome distinguished in the fields of medicine, objectives of Wellcome, which have been and the Group for that period.

34 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Structure and Governance (continued)

In preparing these Financial Statements, Grant-making policy Statement of disclosure of the Trustee is required to: Wellcome has established its grant- information to auditors • select suitable accounting policies making policy to support its status So far as the Trustee is aware, there is and then apply them consistently as a public benefit entity. no relevant audit information of which Wellcome’s auditors are unaware. The • observe the methods and principles We consider and fund a large number of Trustee has taken all the steps that it in the Charities Statement of grants and awards for our core activities believes it ought to have taken as a Recommended Practice ‘Accounting through our wide portfolio of funding Trustee in order to make itself aware of Reporting by Charities’ schemes. The scheme categories are: any relevant audit information and to Biomedical science research, Population • make judgements and estimates that establish that Wellcome’s auditors are health research, Product development are reasonable and prudent aware of that information. and applied research, Humanities and • state whether applicable accounting social science, and Public engagement standards have been followed, subject and creative industries. Committees of the to any material departures disclosed and Board of Governors All applications are reviewed to ensure that explained in the Financial Statements The Board of Governors is supported by they will be supported by adequate and its principal committees, each of which • prepare the Financial Statements on appropriate resources and are used only has at least one Governor as a member: the going concern basis unless it is for grant activities. Grants are generally inappropriate to presume that Wellcome subject to requirements to submit progress • Investment Committee: will continue in business. reports during the grant period and an end Reviews and determines strategy of grant report within three months of the and other matters relating to The Trustee is responsible for keeping end of the grant period. Wellcome’s investment portfolio proper accounting records that disclose with reasonable accuracy at any time the Details of how to apply for grants, • Remuneration Committee financial position of Wellcome and enable together with the relevant forms, (Discussed on pages 40–42) are available on wellcome.ac.uk. them to ensure that the Financial • Nominations Committee: Statements comply with the Charities As discussed under “Our funding Identifies potential candidates to fill Act 2011 and the Charity (Accounts approach” on page 8, in addition to the Board and Committee vacancies and Reports) Regulations 2008. grants for our core activities, we provide and ensures succession planning funding for the Priority areas. Areas for The Trustee is also responsible for • Audit Committee this funding are Wellcome sought for safeguarding the assets of the Group and (Discussed on page 43–44) hence for taking reasonable steps for the Wellcome’s mission and primarily prevention and detection of fraud and Wellcome led. Levels of funding are The terms of reference of these other irregularities and for the maintenance determined through the scoping, committees can be found at and integrity of the charity and financial development and implementation stages. wellcome.ac.uk/About-us/ information included on Wellcome’s Organisation/Governance. website. UK legislation governing the Public benefit In its grant-funding and direct charitable preparation and dissemination of Financial The Trustee confirms that it has referred activities, the Board of Governors is also Statements may differ from legislation in to the guidance contained in the Charity supported by a number of advisory other jurisdictions. Commission’s general guidance on public committees, which some Governors The Trustee has reviewed and considered benefit when reviewing Wellcome’s aims attend as observers. These committees the work and the recommendations of and objectives and in planning future assess, review and advise which grant the Audit Committee, as detailed in the activities and setting the grant-making applications to fund, and also advise on Audit Committee Report on pages 43–44, policy for the year. policy issues in various fields. and considers that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary to assess the performance and strategy of Wellcome and the Group.

35 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Structure and Governance (continued)

Internal control Conflicts of interest While no system of internal control can • Reporting: the Board of Governors Wellcome’s policy on conflicts of interest, provide absolute assurance against approves and reviews annual budgets which applies to Governors, employees material misstatement or loss, Wellcome’s and expenditure, and monitors forecast and committee members, sets out systems are designed to provide the Board expenditure, investment performance principles for identifying and managing of Governors with reasonable assurance and risk reports on a regular basis. actual and potential conflicts of interest to that there are proper procedures in place ensure decisions are free from any undue • Risk management: a risk management and that the procedures are operating external influence. Where a potential policy states Wellcome’s approach to effectively. The Executive Leadership conflict is identified it will be managed risk and documents the process of Team reviews key internal operational and according to its materiality, with actions internal control. Wellcome maintains a financial controls annually and confirms the ranging from not participating at all or grants assurance framework to monitor operating effectiveness of those controls to being involved in discussions but not the appropriate use of funds. the Board of Governors, which in turn also voting, to being fully involved if the reviews key controls. • Internal audit: a team evaluates the design conflict is immaterial. and effectiveness of risk management, The key elements of the system of Governors who have paid appointments control, and governance processes internal control are: with institutions that are in receipt of across Wellcome, and at selected grant grants from Wellcome are detailed in • Delegation: there is a clear recipients and third parties. note 7 to the Financial Statements. organisational structure with • Review: the Audit Committee, which documented lines of authority and Kay Davies, Deputy Chair of the Board has at least one Governor and two responsibility for control, and of Governors until 1 January 2018, is a external members, oversees the documented procedures for reporting co-founder and shareholder of Summit outcomes of external and internal decisions, actions and issues. Therapeutics plc, in which Wellcome has audits, reviews Wellcome’s processes a Programme Related Investment. • Policies: a suite of policies cover of internal control and risk management, all major activities and risk areas. considers its compliance with relevant Wellcome has adopted a values-based statutory and finance regulations, and approach to internal policies which advises the Board of Governors of any places greater emphasis on personal relevant matters. judgement and responsibility. Governors and employees are expected to conduct themselves with integrity and impartiality, be open, fair and unbiased when making decisions on behalf of Wellcome, and act in its best interests.

36 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Risk Management

Wellcome’s risk management policy sets of implementation activity is underway, • any further actions proposed with out our risk management objectives and led by Wellome’s Data Protection Officer. delivery deadline; principles and attitude to risk. This policy This includes an all staff training and • the owner of each proposed action; and summarises the responsibilities of key awareness programme which will run roles for risk management, including through to early 2018, an extensive data • the target risk assessment score. the role of the Board of Governors, mapping exercise and a review of all The current risk assessment ranking the Executive Leadership Team (“ELT”) relevant Wellcome contracts, policy, estimates the level of risk that is currently and the Audit Committee. procedure and data processing activities faced taking into account the effectiveness and arrangements. Wellcome is risk averse with respect to of existing preventative and mitigating liquidity risk and to health and safety risk, The Corporate Risk Register contains the actions. The target risk assessment and receptive (taking risk within accepted key corporate risks owned and managed ranking estimates the level of risk that will limits) with respect to investment portfolio by the ELT and the Board of Governors. be faced once all planned actions are risk and certain charitable activities, such It is updated and reviewed on a regular completed. The target risk ranking does as supporting milestone driven grants basis by the Chief Financial Officer and not estimate the desired level of risk – just within the UK scientific and research then by the ELT. It also is reviewed by the the level of risk that will be faced once the community. It is bold with respect to Board of Governors annually and by the planned actions are completed. The target other charitable activities, for example, Audit Committee. risk ranking is often used to determine where Wellcome supports research and whether sufficient actions are being developments in priority areas, such as The Corporate Risk Register includes: implemented for significant risks. drug resistant infections and vaccines. • Wellcome’s Corporate Risk Matrix, The risk categories are: against which the risks are scored; and Wellcome’s statement as required by the • delay or non-delivery of Wellcome’s Modern Slavery Act 2015 is available on • a description of each corporate risk objectives e.g. skill shortages, key our website. and treatment plan. partner or supplier failure, delay in In preparation for the EU General Data For each of the risks included, the delivery of a strategic objective; Protection Regulation (GDPR) coming into Corporate Risk Register gives: • financial loss e.g. impact causes force in May 2018, Wellcome has created • a description of the risk; monetary loss, fraud; an internal, cross-divisional working • investment loss e.g. volatile investment group to look at the impact of GDPR • the owner of the risk, as designated markets, negative real returns; and oversee the implementation of its by the ELT; requirements. Working within Wellcome’s • reputation and licence to operate e.g. • the controls currently in place to Information Governance framework criticism by stakeholders; unethical manage the risk; with oversight from Wellcome’s Senior behaviour by Wellcome impacting Information Risk Officer, a programme • the current risk assessment score; a key stakeholder group;

37 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Risk Management (continued)

• regulatory, legal, accounting or tax internal financial controls, internal control Whilst not listed in the table below, compliance issues e.g. inquiry by a systems and risk management systems. Wellcome is very cognisant of cybercrime regulator, potential prosecution; and Wellcome’s Head of Risk attends the risks and continues to invest in security Audit/Audit & Risk Committees of infrastructure and services (intrusion • health & safety e.g. injury, fatality. the subsidiaries and escalates any prevention systems, threat assessment Wellcome Trust’s wholly owned operating substantive issues to the Wellcome’s systems and external security and risk investment subsidiaries take responsibility ELT and Audit Committee. intelligence services) as well as in training for risk management within their and staff awareness. We recognise that The Directors of Genome Research respective operating companies. it is important to continue to evolve Limited (“GRL”) have implemented The Board of each operating company technology, partnerships and processes a formal risk management process to includes appropriate representation from in this area and to ensure that cyber assess financial and business risk and the Wellcome Trust and is responsible threat responses are built into business implement risk management strategies for ensuring that the operating company resilience and disaster recovery plans. for the Genome Campus. They have has an appropriate balance between identified the main risks GRL faces, risk and reward, and an appropriate risk prioritised them in terms of potential management culture. The Audit/Audit impact and likelihood of occurrence, & Risk Committee for each operating and have identified means of mitigating company is responsible for carrying out the risks. The GRL Audit and Risk the roles delegated to it by the Board. Committee reviews the risk management This includes reviewing the adequacy policy, risk processes and the Institute and effectiveness of the company’s Risk Register annually.

38 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Risk Management (continued)

The specific risks which the Board of Governors considers as the most serious are:

Nature of risk Management and oversight of risk

Investment Failure to support Wellcome’s ability to maintain The Investment Executive manage this risk by; global risks the real level of charitable spend in the future, due diversification across assets and asset classes, to to one or more of; catastrophic loss of one or more limit the potential for catastrophic loss within the assets within the portfolio, inadequate liquidity, and/ portfolio; diversification of cash flow sources and or lack of protection against the impact of inflation. regular review of forecast cash flows to manage the portfolio’s liquidity profile; and regular consideration of inflation protection within the portfolio and a focus on equities and property. The cash flow forecasts consider base and bear case scenarios and the Managing Partners aim to ensure that the forecast cash low remains above 2% of the current portfolio value. Strategic review is provided by the Investment Committee and oversight is provided by the Board of Governors. The separate risks associated with the management of directly-owned, property-backed operational businesses are being managed by the development and appropriate incentivisation of executive teams within these businesses and the evolving governance and oversight by the Board of each company and by the Investment division.

Delivery of There is a risk that the research funding and regulatory Management continues to monitor the environment the goals environment does not remain scientifically or financially and has active engagement with UK government of Policy attractive. The UK government may – in the future – departments and opposition parties on science and Public react to a difficult economic environment by reducing funding and the regulatory framework. Wellcome has Affairs funding to the scientific community, although the post- an on-going dialogue with other relevant charities EU Referendum statements made by government have and universities on these issues. The ELT contributes highlighted support for science spending. actively to the UK Comprehensive Spending Review.

EU The key risks to Wellcome with respect to the UK’s A working group has been established to consider Referendum referendum vote to leave the EU are that the UK the impact of the EU referendum outcome. This outcome Science ecosystem is seen as a less attractive group collates feedback from across Wellcome on arena for Wellcome to support, given a difficulty the impact of this on the strength of the UK funding in retaining and attracting non-UK scientists, a environment and Wellcome’s activities, to monitor potential impact on the salaries in the UK given the situation as it develops. The group provides Sterling weakness and a period of uncertainty in information to the ELT to support its decision- respect of UK science regulation and policies. making. In addition, we have a policy and advocacy There is also a risk that current grant recipients are programme that seeks to influence key outcomes impacted by Sterling weakness and volatility and are on migration, regulation and funding for science, thus unable to complete projects with the allocated including informing the shape of a potential UK-EU funding. There is an operational risk that Wellcome is Science and Innovation deal. unable to hire and retain the best employees given a perception that the UK working environment is less welcoming to international and EU nationals.

International Failure to achieve the research capacity building Management continues to focus on governance initiatives aims of the initiatives. Risks potentially arise from structures and leadership development at the the local political, economic or physical environment; initiatives. Security reviews have taken place to from failure of governance or management; and from enhance preparedness and resilience. operational issues.

39 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Remuneration Report

Wellcome develops and maintains Table 1 remuneration strategies and policies in line Elements of remuneration with the strategy, culture and objectives of the organisation. Our aim is to attract, Element Principle retain, motivate and effectively reward our people, recognising their contribution to Base salary Salaries are reviewed annually, taking account Wellcome’s overall mission. of responsibilities and development in the role. They are regularly benchmarked against the Our key principles are that remuneration market using appropriate specialist surveys or should be: independent consultants.

• Competitive: salaries are benchmarked Benefits A competitive benefits package is available to all using external market data appropriate employees, including private medical insurance, to the sector in which people work. medical assessments, permanent disability insurance, an on-site gym, enhanced maternity • Performance-linked: individual and paternity pay, shopping and entertainment performance and behaviours are discounts and season ticket loans. assessed and team achievements taken into consideration for the Bonuses All colleagues are included in a bonus scheme based on individual and collective achievements. award of bonuses during the annual The Investments team has a separate, additional salary review. bonus element in their remuneration. Other individual and project-based awards are made • Simple and transparent: the at managers’ discretion. remuneration structure is openly communicated to colleagues. Long-term In order to ensure that remuneration of the The bonus scheme and benefits incentive plan Investments team remains competitive and to are available to all employees. encourage a long-term view, certain employees Benefits can be accessed and participate in a long-term incentive plan. Awards to employees are made annually, based on managed through a portal that also investment returns and individual performance provides a total reward statement. over a period of three to five years. During the year, Willis Towers Watson Pension The Group sponsors two approved funded defined acted as independent consultants to benefit schemes: the Wellcome Trust Pension Plan provide us with salary benchmarking and the Genome Research Limited Pension Plan. data and McLagan provided independent Pensions payable are related to length of service, advice on the remuneration of the salary and level of personal contribution. The Group also provides a defined contribution Group Personal investments team. Pension plan, into which both employee and employer contributions are paid. Since April 2016, new employees join the defined contribution scheme.

Governors’ In accordance with the will of Sir , remuneration Governors are entitled to receive remuneration from the Trustee, The Wellcome Trust Limited, of which they are directors. Under Wellcome’s Constitution, Governors are entitled to receive £57,100 a year from 1 April 2000, adjusted with effect from 1 April each year by an amount equal to the percentage increase recommended by the Review Body on Senior Salaries in respect of the salary pay bands of the Senior Civil Service. Following approval by the Charity Commission of a Scheme in October 2011, the levels of remuneration of Chairs and Deputy Chairs can be set by the Board of Governors at up to 2 and 1.5 times the level of a Governor respectively.

40 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Remuneration Report (continued)

The Remuneration Committee Table 2 The Board of Governors appoints the Governors’ Remuneration Remuneration Committee, chaired by Year to 30 September Eliza Manningham-Buller. The members are all Governors, all of whom are 2017 2016 £ £ excluded from any discussion which affects their own pay. The responsibilities Baroness Manningham-Buller (Chair) 142,108 141,677 of the committee are to approve the Professor Dame Kay Davies (Deputy Chair) 106,581 106,258 reward strategy and policies for Professor Michael Ferguson 71,054 70,839 remuneration of employees, including Professor 71,054 70,839 incentive and benefit plans, and to Mr Alan Brown 71,054 70,839 determine individual remuneration Sir 71,054 70,839 packages and terms and conditions of employment for members of the Executive Mr William Burns 71,054 35,527 Leadership Team and other senior staff. Professor 71,054 70,839 In addition, the committee exercises any Professor Richard Hynes 17,764 70,839 powers, and approves any decisions Professor Anne Johnson 71,054 70,839 required by Wellcome, in respect of Professor Peter Rigby - 53,075 the Wellcome Trust Pension Plan, the Total remuneration 763,831 832,410 Genome Research Limited Pension Plan, and any other pension arrangements. Expenses in respect of travel, subsistence, telephone and sundries incurred by the It ensures that remuneration practices Governors in the course of their duties amounted to £102,061 (2016: £180,775), and policies facilitate the employment of which £90,546 (2016: £121,185) was paid directly by Wellcome, and £11,515 (2016: £59,590) was paid by Governors and directly reimbursed to them. No pension and retention of talented people. contributions were paid in respect of the Governors. The Governors were included in the Directors’ and Officers’ liability insurance in the year to 30 September 2017.

41 Wellcome Trust Annual Report and Financial Statements 2017 Trustee’s Report

Remuneration Report (continued)

Key Management Personnel The key management personnel of the Table 3 Wellcome Trust Group and Wellcome Consideration of Key Management Personnel have been defined as the Board of Year to 30 September Governors and the ELT (consisting of the Director, 11 senior executives and 2017 2016 £ £ the Investment Executive (responsible Governors’ remuneration 763,831 832,410 for decision making in respect of the investment portfolio)). The roles Director of Wellcome Trust 445,220 480,534 Executive Leadership Team and responsibilities of the Board of 2,723,079 2,326,103 Governors and the ELT are discussed (excluding Investment Executive) in the Structure and Governance Investment Executive 8,923,802 6,680,131 section on page 34. Employer pension contributions (for relevant staff) 256,735 194,459 Employer National Insurance Contributions 1,067,119 1,154,371 The total consideration includes (for relevant staff) Governors’ remuneration, salaries, 14,179,786 11,668,008 benefits in kind, bonuses, amounts accrued under long-term incentive plans, The comparator figure for the year to 30 September 2016 relates to the termination payments and employer 7 members of the Executive Board that was in place during that period. pension contributions. The determination This was replaced by the ELT in 2017 as discussed on page 34. of the remuneration of the Governors is discussed in Table 1. The remuneration of the ELT is determined in accordance with the principles for all staff as detailed within this Remuneration Report. Investments team The remuneration of the Investment Wellcome manages the investment Members of the Investments team are Executive is discussed under portfolio that underpins our charitable remunerated in line with normal practice “Investments team” below. activities through an internal Investments in the asset management sector: their team, which manages a large proportion base salaries are supported by significant Details of the number of employees of the investments directly rather than variable elements, which are based working on the charitable activities through external fund managers. Due to directly on the performance of the of the Group whose total benefits the size, breadth and long-term nature portfolio, either in the form of annual (excluding employer pension of its portfolio, Wellcome can attract and bonus or, more significantly, long-term contributions) fall within specific retain a highly skilled group of investment incentive plans as detailed in Table 1. The £10,000 bandings, where benefits professionals. With the right leadership structure and quantum of remuneration is exceed £60,000, are shown within the and approach, this group has been able benchmarked on an ongoing basis using Financial Statements under Note 11(d). to generate superior returns and incur market data and external consultants. lower costs than would be the case Details of the number of employees if this activity were outsourced working on the investment activities of to traditional asset management the Group whose total benefits (excluding organisations. The performance of employer pension contributions) fall within the portfolio supports this approach. specific £10,000 bandings, where benefits exceed £60,000, are shown within the Financial Statements under Note 5.

42 Wellcome Trust Annual Report and Financial Statements 2017 Audit Committee Report

As the new Chairman of the Audit In addition to the reviews of External In addition, in 2017 the rate of discount Committee, I am pleased to present our audit, Financial Reporting, Internal audit selected to discount the grant liabilities report for the year ended 30 September and Risk Management discussed below, was added as a significant risk as it 2017. This report summarises the work key governance areas considered by the requires considerable judgement on the Committee has done over the past Committee at the formal meetings during the part of management and the liability year in fulfilling our responsibilities to the year were: is material. provide effective governance over the • Fraud and whistleblowing; Group financial reporting. Independence • Business Continuity; and The Committee seeks to ensure the • The Modern Slavery Act. continued independence and objectivity Effective Committee of Wellcome’s external auditors. Governance After each Committee meeting the In order to meet regulatory or business The membership of the Audit Committee Chairman of the Committee reports to requirements, the external auditors (“the Committee”) is set out on page 117. the Board on the main issues that the may be employed for certain non-audit Although not members of the Committee, Committee discussed. In addition to the services. To safeguard the independence the Chief Financial Officer, the General formal Committee meetings and in line and objectivity of the external auditors, Counsel and Company Secretary, with the previous year, we met informally the Committee has determined policies the Head of Financial Accounting, several times during the year to provide as to the approval process related to the Head of Risk, the audit partner from briefings on areas of interest, which are non-audit services. These policies take our external auditors and the Head of of particular interest to non-Governor in to account the changes required by the Internal Audit attend each meeting. members. Topics discussed included a review of the Science strategy, horizon relevant EU Regulations and Directives, The Board of Governors considers that scanning, IT controls, a review of the the FRC “Guidance on Audit Committees” the Committee’s members have broad Investment portfolio, Wellcome’s and the “Revised Ethical Standard”. commercial, scientific and charitable international operations, the procurement At both the April and the December knowledge and experience. The Board policies and cybersecurity. meeting each year, the Committee reviews has determined that William Burns, Adèle On behalf of the Committee I would like to the Auditor’s report about independence Anderson and Chris Jones have recent of its staff, its policies for maintaining and relevant financial experience in line thank Alan Brown and Philip Johnson, who stepped down from their roles in December staff independence and monitoring with the UK Corporate Governance Code. compliance with relevant requirements The Terms of Reference of the Committee 2016, most sincerely for their invaluable contributions to the development and and its safeguards in relation to the are aligned with the FRC Guidance on provision of non-audit services. Audit Committees. functioning of the Committee during their time as Chair and member respectively. The performance of the Committee is Financial reporting reviewed on a regular basis with input External audit At the December meeting each year, from the Committee members and key At the April meeting each year, the the Committee reviews the Trust and executives. The conclusions of the review Committee discusses with the auditors Consolidated Annual Report and Financial at the April Audit Committee meeting the scope of their audit and makes Statements and related announcements were that the Committee works well recommendations to the Board before for statutory and regulatory compliance and that the independent member and the audit commences. The significant and in line with its Terms of Reference. Governor mix adds significant value to audit risks that are in line with 2016 are: In particular it reviews the integrity the work of Wellcome. However, some of the disclosures in the Financial • The valuation of unquoted investments attention should be given to the scope of Statements and considers the minutes the meetings and remit of the Committee • Gains and losses on investments of the Valuation Group meetings. to ensure that they operate efficiently at • Management override of controls It reports its views to the Board to all times. (which is a risk in any organisation) assist in its approval of such documents.

43 Wellcome Trust Annual Report and Financial Statements 2017 Audit Committee Report

The main area of risk considered at On the basis of the work done, the Audit Committee prior to implementation, the December 2017 meeting was the Committee recommended to the Board with the 2017/18 plan being endorsed by valuation of investments in private equity, of Governors that the Annual Report the Committee during the September 2017 direct and real estate. The valuation of taken as a whole is fair, balanced Audit Committee meeting. The plan these classes of investments involves a and understandable. In justifying this outlines how each audit will be resourced level of complexity and judgement and the statement, the Audit Committee has to provide assurance that it has the right results of the detailed work of the Valuation considered the robust process in place expertise for execution. The plan is Group were considered. which includes the following: regularly reviewed and updated taking into account Wellcome’s risks. Any changes Other matters covered in 2017 were: • Clear guidance is given to all are approved by the Audit Committee. contributors; • A review of the assessment that At each meeting, the audit committee management has made of the key • Revisions to regulatory requirements receives an update on audit reports judgements and estimations applied are monitored on an ongoing basis and completed and observations identified, to Assets and Liabilities reported in are discussed at the Audit Committee progress on completion of actions arising the Group Balance Sheet to ensure meetings throughout the year; from the audits and performance of the that these are appropriate and are • Finance staff meet with the auditors internal audit function. considered when finalising the year throughout the year to discuss end results, including the revision to developments within the business and Risk management the expected rate of return used to any impact on the financial reporting; and discount the grant liabilities. At each meeting, the Committee monitors • A thorough process of review, evaluation and reviews risk management processes • A review of the treatment of and and verification is undertaken by senior and the standards of risk management disclosures relating to the disposal of the management and finance staff. and internal control, including the group’s subsidiary, Syncona LLP group processes and procedures for ensuring and the related investment in Syncona Internal audit that material business risks are properly Limited (formerly BACIT Limited). identified and managed. The Committee Wellcome Trust has an in-house internal has monitored the areas listed on • Accounting and reporting for joint audit function that is supplemented pages 37–39, which are reviewed and ventures and associates, which are held through the use of a co-source partner, considered by the Head of Risk alongside as investments at fair value in line with which provides external expertise where senior management. FRS 102, but which is a departure from relevant. The Head of Internal Audit reports the SORP. The SORP requires that such functionally into the Audit Committee investments are accounted for using the which evaluates her performance annually. equity method of accounting. (This is Internal Audits are performed based on a further discussed on page 64 and in risk-based internal audit plan (“the plan”). note 16). The plan is reviewed and approved by the

William Burns Chairman of the Audit Committee 11 December 2017

44 Wellcome Trust Annual Report and Financial Statements 2017 Independent Auditor’s Report

To the Trustee of the Wellcome Trust

Opinion Basis for opinion In our opinion the financial statements: We have audited the financial statements We conducted our audit in accordance of the Wellcome Trust (the ‘Trust’) and its with International Standards on Auditing • give a true and fair view of the state subsidiaries (the ‘Group’) which comprise: (UK) (ISAs (UK)) and applicable law. Our of the Group’s and of the Trust’s affairs responsibilities under those standards as at 30 September 2017 and of the • the Consolidated and the Trust are further described in the auditor’s Group’s and of the Trust’s incoming Statements of Financial Activities; responsibilities for the audit of the resources and application of resources • the Consolidated and the Trust financial statements section of our report. for the year then ended; Balance Sheets; We are independent of the Group and • have been properly prepared in the Trust in accordance with the ethical accordance with United Kingdom • the Consolidated Cash Flow requirements that are relevant to our audit Generally Accepted Accounting Statement; and of the financial statements in the UK, Practice, including FRS 102 “The • the related notes 1 to 27. including the FRC’s Ethical Standard Financial Reporting Standard applicable as applied to public interest entities, in the UK and Republic of Ireland”; and The financial reporting framework that has been applied in their preparation and we have fulfilled our other ethical • have been prepared in accordance is applicable law and United Kingdom responsibilities in accordance with these with the requirements of the Charities Accounting Standards (United Kingdom requirements. We confirm that the Act 2011. Generally Accepted Accounting Practice), non-audit services prohibited by the including Financial Reporting Standard FRC’s Ethical Standard were not provided 102 “The Financial Reporting Standard to the Group or the Trust. applicable in the UK and Republic of We believe that the audit evidence we Ireland” (United Kingdom Generally have obtained is sufficient and appropriate Accepted Accounting Practice). to provide a basis for our opinion.

45 Wellcome Trust Annual Report and Financial Statements 2017 Independent Auditor’s Report

To the Trustee of the Wellcome Trust (continued)

Key Audit The key audit matters that we identified in the current year were: Matters • The valuation of unquoted investments and the related realised and unrealised gains/losses relating to controlled, unconsolidated subsidiary investments: o Premier Marinas and Farmcare • The valuation of unquoted investments and the related realised and unrealised gains/losses relating to: o direct investments o private equity funds o joint ventures (iQ Student Accommodation) • Accounting for associates and joint ventures • The discount rate used to calculate grant liabilities Within this report, any new key audit matters are identified with and any key audit matters which are the same as the prior year are identified with .

Materiality The Group materiality that we used in the current year for the financial statements as a whole was £221 million which was determined on the basis of 1% of net assets. We also applied a lower level materiality to balances related to the Trust’s grant liabilities and grant expenditures included within Costs of Charitable Activities on the Statement of Financial Activities. The lower level materiality we used in the current year was £18.2 million which was determined on the basis of 2% of grant expenditure.

Scoping Our Group audit scope included the audit of all subsidiaries that accounted for more than 1% of net assets as well as any subsidiary that required a statutory audit. This meant that 99% of net assets were subject to a full scope audit for the year ended 30 September 2017.

Significant In our audit approach for the current year we revised the basis used to determine materiality and applied a lower level changes in the of materiality for certain account balances. We also identified two additional key audit matters with respect to the approach for discount rate used to discount grant liabilities and also the departure from the SORP for accounting for associates the current year and joint ventures. Change in materiality basis The basis of Group materiality has been revised to 1% of net assets from 0.5% of total assets. This revision was determined based on our judgement, considering that the Trust’s balance sheet operates similarly to that of an investment trust. This change aligns our methodology with industry practice for comparable asset–based organisations. Furthermore, we determined that using lower materiality threshold for grant liabilities and grant expenditure was appropriate given the impact of the change in our materiality. We determined this lower level materiality as 2% of grant expenditure. The grant making activities are balances that are important to the users of the financial statements and so the lower level of materiality enabled appropriate focus on these balances. Additional Key Audit Matters • The departure from SORP in relation to accounting for associates and joint ventures was determined as a key audit matter due to the significant management judgement in determining the accounting treatment. • The discount rate used for calculating the grant liabilities was determined to be a key audit matter due to the impact a change in the discount rate has upon the grant liability balance. We have applied the lower level of materiality, explained above, which is applicable to this grant liabilities balance.

46 Wellcome Trust Annual Report and Financial Statements 2017 Independent Auditor’s Report

To the Trustee of the Wellcome Trust (continued)

Conclusions related to • the Trustee’s explanation on page 33 Key audit matters principal risks, going concern as to how they have assessed the Key audit matters are those matters that, and viability prospects of the Group, over what in our professional judgement, were of We have reviewed the Trustee’s Report period they have done so and why they most significance in our audit of the regarding the appropriateness of the consider that period to be appropriate, financial statements of the current period going concern basis of accounting and their statement as to whether they and include the most significant assessed contained within note 1(a) to the Financial have a reasonable expectation that risks of material misstatement (whether Statements and the Trustee’s statement the Group will be able to continue in or not due to fraud) that we identified. on the longer-term viability of the Group operation and meet its liabilities as These matters included those which had contained within the Trustee’s Report on they fall due over the period of their the greatest effect on: the overall audit page 33. assessment, including any related strategy, the allocation of resources in disclosures drawing attention to any the audit; and directing the efforts of the We are required to state whether we have necessary qualifications or assumptions engagement team. anything material to add or draw attention to in relation to: We confirm that we have nothing • the Trustee’s confirmation on page 33 material to add or draw attention These matters were addressed in the that they have carried out a robust to in respect of these matters. context of our audit of the financial assessment of the principal risks facing statements as a whole, and in forming our the Group, including those that would We agreed with the Trustee’s adoption opinion thereon, and we do not provide a threaten its business model, future of the going concern basis of separate opinion on these matters. performance, solvency or liquidity; accounting and we did not identify any such material uncertainties. • the disclosures on pages 37–39 that However, because not all future describe those risks and explain how events or conditions can be predicted, they are being managed or mitigated; this statement is not a guarantee as • the Trustee’s statement on pages 34–35 to the Group’s ability to continue as of the Financial Statements about a going concern. whether they considered it appropriate to adopt the going concern basis of accounting in preparing them and their identification of any material uncertainties to the Group’s ability to continue to do so over a period of at least twelve months from the date of approval of the Financial Statements; and

47 Wellcome Trust Annual Report and Financial Statements 2017 Independent Auditor’s Report

To the Trustee of the Wellcome Trust (continued)

Key audit matters (continued)

Valuation of unquoted investments, including realised and unrealised gains/losses relating to joint ventures (iQ Student Accommodation) and controlled, unconsolidated subsidiary investments (Premier Marinas and Farmcare)

Key audit matter The valuation of Premier Marinas, Farmcare and iQ Student Accommodation (previously called Vero) involves description significant judgement when determining the valuation approach and the use of key judgemental inputs and assumptions. As a result of these judgements, there is more potential for fraud in this area. The primary input to each of these valuations is the fair value of alternative real estate assets including marina assets, student accommodation and farmland. There are few comparable transactions for alternative real estate assets such as Marinas and therefore this increases the judgement in determining the fair valuation of those assets There is a risk that the application of an inappropriate valuation methodology and/or the use of inappropriate assumptions could result in the valuation of unquoted investments being materially misstated. This would subsequently drive the changes in gains and losses. The valuation of Premier Marinas, Farmcare and iQ Student accommodation amount to £0.76bn, which is 8% of the Group’s unquoted investments, and 3% of the Group’s net assets. The Audit Committee Report on page 44 identifies the valuation of real estate assets as a main area of risk. The significant accounting judgements with respect to the Group’s fair value measurement and valuation policies are described in notes 2 and 16.

How the scope of our In responding to the key audit matter arising when determining the fair value of Premier Marinas, Farmcare audit responded to the and iQ Student Accommodation, we performed the following procedures: key matter Controls Assessment We assessed the design and implementation of key controls identified in relation to the valuations throughout our audit. This included gaining an understanding of the procedures performed by the Valuation Group. We attended a Valuation Group meeting to evidence that the information provided by Management provides sufficient insight into the investments for the Valuation Group to appropriately challenge the assumptions. Premier Marinas and Farmcare • We obtained and reviewed 30 September 2017 and 30 September 2016 external valuation reports. Management instructed and determined that the valuation approach for each was in accordance with the Royal Institution of Chartered Surveyors (‘RICS’) Valuation – Professional Standards. We assessed the competence, qualifications, capabilities and independence of the third party valuers. We compared 2016 and 2017 reports to assess any changes in methodology or approach year on year; • We involved real estate specialists as part of our audit team to review the third party valuation reports. We challenged the appropriateness of the fair value methodologies used for the various real estate assets, the market assumptions used as part of their valuations (e.g. berth rates for Premier Marinas, rents, yields, discounts for tenancies and discount rates) and their valuation conclusions. As part of this process, we held a meeting with the third party valuers used where we challenged the key judgements made in their valuation against our expectations, our own market intelligence and external information, where such data was available; • Specifically for Premier Marinas: we reviewed the work of our Deloitte audit team who perform the Premier Marinas audit to determine whether cash flow data used in the discounted cash flows valuation was appropriate given their understanding of the business; and • Specifically for Farmcare: for a sample of assets we obtained relevant third party data to support acreage and other inputs that drive the valuation.

48 Wellcome Trust Annual Report and Financial Statements 2017 Independent Auditor’s Report

To the Trustee of the Wellcome Trust (continued)

Key audit matters (continued)

How the scope of our iQ Student Accommodation audit responded to the • We obtained and reviewed the 30 September 2017 external valuation report and noted that the key matter valuation was in accordance with the Royal Institution of Chartered Surveyors (‘RICS’) Valuation – Professional Standards; and • We involved real estate specialists as part of our audit team to review information provided by Management, including asset listings and yields. We assessed the appropriateness of the key assumptions driving the valuation including rental assumptions, occupancy rates, operating cost assumptions and yield assumptions. We challenged these assumptions based on our own market intelligence and external information.

Realised and unrealised gains/losses • We sampled purchases and sales during the period and traced these to supporting documentation. Based on this procedure and the above procedures performed over valuation, we were able to recalculate the associated gains and losses and conclude on the appropriateness thereof.

Key observations We note a departure from the Charities SORP with respect to the accounting treatment for associates and joint ventures. This impacts the treatment of iQ Student Accommodation. The departure from the Charities SORP is discussed below in the Accounting for associates and joint ventures in the key audit matters. As a result of our procedures, we found the valuations of these investments were appropriate.

49 Wellcome Trust Annual Report and Financial Statements 2017 Independent Auditor’s Report

To the Trustee of the Wellcome Trust (continued)

Key audit matters (continued)

Valuation of unquoted investments, including realised and unrealised gains/losses relating to unquoted direct investments and private equity funds

Key audit matter The valuation of private equity funds and unquoted direct investments requires significant judgement as description the values are derived from unobservable inputs and assumptions. As a result of these judgements, for direct investments, there is more potential for fraud in this area. The values are obtained from co-investors, underlying private equity fund managers, or are valued based on internal models. As they are sensitive to these unobservable inputs and assumptions, there is a risk that the application of an inappropriate valuation methodology and/or the use of inappropriate assumptions could result in the valuation of unquoted investments being materially misstated. This would subsequently drive the changes in gains and losses. The valuation of the Group’s investments in private equity funds and unquoted direct investments amount to £6.2bn which is 64% of the Group’s unquoted investments, and 28% of the Group’s net assets. The Audit Committee Report on page 44 the valuation of private equity funds assets as a main area of risk. The significant accounting judgements with respect to the Group’s fair value measurement and valuation policies are described in notes 2 and 16.

How the scope of our We assessed Management’s valuation methodology and considered whether it was in accordance with the audit responded to the accounting policies of the Trust, applicable accounting standards and industry practice. We assessed the key matter controls applied by Management and tested these controls where we placed reliance on them. Controls Assessment We assessed the design and implementation of key controls identified in relation to the valuations throughout our planning and interim work. This included gaining an understanding of the procedures related to the ongoing monitoring of fund managers and the processes by which valuation approaches are continually re-assessed and challenged by the Valuation Group. We performed testing of the following valuation controls: • We tested the controls and procedures performed by Management during the year, including reviewing minutes of the calls/meetings held with the external fund managers and co-investors to monitor these investments; • For unquoted direct investments, we reperformed Management’s review for a sample of investment assets by inspecting documentation to determine whether valuations were challenged based on recent knowledge of the investments, as gained through calls with key Management personnel of the investment companies; • For private equity investments, we reperformed the review of the private equity fund financial statements by Management and ensured that the review appropriately assessed key elements in the financial statements such as whether the funds measured the investments at fair value, auditor information, basis of preparation and going concern; and • We inspected documentation and attended the valuation Group meeting to evidence that the Valuation Group has reviewed and reasonably challenged the valuation of investments at year end, as presented by Management and as recorded in the financial statements.

50 Wellcome Trust Annual Report and Financial Statements 2017 Independent Auditor’s Report

To the Trustee of the Wellcome Trust (continued)

Key audit matters (continued)

How the scope of our Private equity funds audit responded to the To verify the year-end valuation for private equity investments, we independently obtained and reviewed the key matter valuation statements for a sample of funds. We assessed the financial statements of the underlying funds are fair valued and assessed whether the auditor standing, auditor location, audit opinion, basis of preparation, going concern and subsequent events disclosure indicated any areas of concern. As part of this review, we critically assessed whether the underlying investments held by the fund were being measured at fair value and whether the methodologies and unobservable inputs disclosed demonstrated appropriate fair value treatment. For the portfolio as a whole, we benchmarked the results and compared these to independently sourced market information to understand the correlation of the portfolio movements as compared to movements in the industry and wider market. Unquoted direct investments For selected samples, we independently obtained and reviewed the unquoted direct investments valuation statements to determine whether the value recorded by the Group was appropriate. We challenged Management’s assessment of the valuation assumptions and appropriateness of valuation methodologies used by the third party to determine the fair value. Where the valuation is determined by the Group, we obtained and reviewed the valuation derivation and assessed the reasonableness of any significant judgemental inputs and assumptions. As part of this process we sought independent evidence including considering contradictory evidence and market comparables to challenge the appropriateness of the judgemental assumptions. Realised and unrealised gains/losses We have sampled purchases and sales during the period and traced these to supporting documentation, based on this procedure and the above procedures, we are able to recalculate the gains and losses associated and conclude on the appropriateness thereof.

Key observations As a result of our procedures we found the valuations of these investments were appropriate.

51 Wellcome Trust Annual Report and Financial Statements 2017 Independent Auditor’s Report

To the Trustee of the Wellcome Trust (continued)

Accounting for associates and joint ventures

Key audit matter The Group currently holds investments in various associates and joint ventures. They record these description investments at fair value through the profit and loss rather than using the equity method of accounting, both of which are permitted by FRS 102. The Charities SORP however states that investments in associates and joint ventures should be measured only using the equity method of accounting. The Group’s treatment of these investments is therefore a departure from the Charities SORP and Management’s rationale was that this departure was necessary for the financial statements to give a true and fair view of the investments and appropriately reflect how the Trust considers these investments. In addition, during the year, the Group made an investment in Syncona Limited which is determined to be an associate of the Group. Management also determined that Syncona Limited is a mixed motive investment. The Charities SORP states that a mixed motive investment should be held at fair value, however as discussed above the Charities SORP also states that an associate should be accounted for using the equity method of accounting as the Charities SORP does not appear to envisage a situation where there is a mixed motive investment that is also an associate. Management made the judgement to depart from the Charities SORP and measure all investment associates and joint ventures at fair value through profit and loss. This departure from the Charities SORP is discussed in Accounting Policies 1(a) Basis of consolidation on page 63 of the notes to the financial statements. The departure has not been quantified on the grounds that Management believe this would prove to be onerous and costly compared to the value it will generate to the readers of the financial statements and is therefore not qualitatively material to the financial statements. We identified that the key audit matters in relation to this are whether: (i) the fair valuation methodology is an appropriate departure from the Charities SORP given the specific circumstances of the Trust; and (ii) the omission of the quantitative effects of the departure is not material.

How the scope of our Substantive procedures: accounting for associates audit responded to the • We reviewed Management’s paper on their accounting for associates and joint ventures which provides key audit matter their rationale on the reason for departure from the SORP and assessed whether it was appropriate given the specific circumstances of the Trust. • We reviewed Management’s assessment of the departure from disclosing the quantitative effect of the departure. Substantive procedures: determining classification of Syncona Limited • We reviewed Management’s paper on accounting for Syncona Limited, considering whether the activities of Syncona Limited were in line with the Trust’s charitable purpose. • We challenged Management’s paper on the criteria considered in determining whether the investment constituted a Mixed Motive Investment, including inspecting evidence that the terms of the investment included investing in life sciences. As part of this, we reviewed communications between the Governors prior to the transaction which confirmed that the investment was in life sciences. This demonstrated that the intention of the investment was not only one of investment return but also delivering on the Trust’s charitable purpose.

Key observations We concur with Management’s view that fair value is a better indicator to the readers of the financial statements of the value of these investments. We concluded that the accounting policies appropriately reflected this departure from the SORP. We concur with Management’s view that the investment in Syncona Limited is a mixed motive investment. We concluded that, although the valuation of Syncona Limited at fair value is not in accordance with the Charities SORP, it is however in accordance with FRS 102, and represents the substance of the transaction.

52 Wellcome Trust Annual Report and Financial Statements 2017 Independent Auditor’s Report

To the Trustee of the Wellcome Trust (continued)

Discount rate applied to the grant liabilities

Key audit matter This is included as a key audit matter this year for the first time given the sensitivity of grant liabilities to description a change in the discount rate and the importance of this balance to the users of the accounts. We have identified the appropriateness of the discount rate applied to the grant liabilities as one of the key sources of estimation uncertainty in the financial statements. The discount rate used is identified as a significant estimate in Note 2 of the annual report. The sensitivity analysis performed in Note 2 shows that a 0.5% change in the discount rate will result in a material change to the grant liabilities of £19m, based on the application of our lower level materiality. The grant liabilities are discounted, as per the requirements of FRS 102. The amount at which they are discounted is based on a calculation involving a discount rate selected and applied by Management, and is based on Management’s expectation of the long-term return of the Trust’s portfolio. This is described by Management in Note 2 as a significant estimate. The discount rate used should reflect the opportunity cost to the Trust of not earning an investment return on funds granted and its current assessment of the time value of money. The appropriate discount rate depends on the circumstances of the charity and determining this discount rate requires significant Management judgement concerning future expectations of investment performance. The discounted portion of the grant liabilities is sensitive to small changes in the discount rate applied and small differences in the discount rate can lead to material misstatement of the grant liabilities. The Audit Committee Report on page 44 makes reference to the significant estimate in this area.

How the scope of our Controls Assessment audit responded to the We assessed the design and implementation of key controls identified in relation to the selection of an key audit matter appropriate discount rate throughout our planning and interim work. This included gaining an understanding of the procedures related to the review of Management’s papers on the selection of an appropriate discount rate and expected rates of long-term return by the Board of Governors used in financial planning and budgeting considerations.

Substantive procedures In responding to the key audit matter that an appropriate discount rate has not been applied and the grant liabilities balance is potentially misstated, we performed the following procedures: • We reviewed Management’s paper to the Board of Governors on its expectation of a long-term nominal rate of return of 5.6% and challenged the assertions made by Management by: o testing the split of investments stated in the paper and the associated expected investment return of each category; o corroborating the stated ranges of nominal rates of return with reference to third party forecasts; and o performing sensitivity analysis on the rate of return by using third party market data in the calculation of the discount rate and determining if variances were material. • We tested the arithmetical accuracy of the grant liabilities discounting workings to determine whether the grant liability was materially accurate, and used Deloitte’s Analytics tools to challenge the integrity of these spreadsheets.

Key observations As a result of our audit procedures, we found the discount rate to be appropriate.

53 Wellcome Trust Annual Report and Financial Statements 2017 Independent Auditor’s Report

To the Trustee of the Wellcome Trust (continued)

Our application of materiality We define materiality as the magnitude of misstatement in the Furthermore, we determined that using lower materiality threshold financial statements that makes it probable that the economic for grant liabilities and grant expenditure was appropriate given decisions of a reasonably knowledgeable person would be the impact of the change in our materiality and these balances changed or influenced. We use materiality both in planning the are important to the users of the financial statements. scope of our audit work and in evaluating the results of our work. Based on our professional judgement, we determined materiality Lower level £18.2m for the financial statements as a whole as follows: materiality

Basis for 2% of grant expenditure Group £221m (2016:£119m) determining materiality for materiality the financial statements as Rationale We have based the lower level materiality a whole for the on the related grant expenditure balance benchmark in the Consolidated Statement of Financial applied Basis for 1% of net assets (2016: 0.5% of total assets) Activities. The basis has been determined determining materiality using professional judgement. Although gross income is the benchmark most commonly used in the sector, grant expenditure is a significant Rationale The Wellcome Trust is an asset based charity balance for users of these financial statements, for the making returns on its investment portfolio to being the primary indicator of the level of benchmark support the charitable actives. applied charitable activity of the Trust during the year. The basis of Group materiality has been revised to 1% of net assets from 0.5% of total assets. This revision was determined We agreed with the Audit Committee that we would report to the based on our judgement, considering that Committee all audit differences in excess of £11m (2016: £2.3m), the Trust’s balance sheet operates similarly to as well as differences below that threshold that, in our view, that of an investment trust. This change aligns warranted reporting on qualitative grounds. We also report to the our methodology with industry practice for Audit Committee on disclosure matters that we identified when comparable asset–based organisations. assessing the overall presentation of the financial statements.

Net Assets Group Materiality

Financially significant component materiality range £55m to £209m

Audit Committee reporting threshold £11m

Net Assets: £21,877m

54 Wellcome Trust Annual Report and Financial Statements 2017 Independent Auditor’s Report

To the Trustee of the Wellcome Trust (continued)

An overview of the scope Other information preparation of financial statements that of our audit The Trustee is responsible for the other are free from material misstatement, Our Group audit was scoped by obtaining information. The other information whether due to fraud or error. an understanding of the Group and its comprises the information included in In preparing the financial statements, environment, including Group-wide the annual report (including comments the Trustee is responsible for assessing controls, and assessing the balances within from the Chair and the Director, Trustee’s the Group’s and the Trust’s ability to each entity and the risks of material Report, Audit Committee Report, continue as a going concern, disclosing misstatement at the Group level. Our Group Reference and Administrative Details) as applicable, matters related to going audit scope included the full scope audit of other than the financial statements and concern and using the going concern all financially significant subsidiaries, our auditor’s report thereon. basis of accounting unless the directors comprising of those with accounting for either intend to liquidate the Group or the Our opinion on the financial statements >1% of Net Assets and those requiring Trustor to cease operations, or have no does not cover the other information and statutory financial statements. Audits were realistic alternative but to do so. we do not express any form of assurance performed at a materiality level determined conclusion thereon. by reference to the scale of the business Auditor’s responsibilities for the concerned. Where significant components In connection with our audit of the audit of the financial statements didn’t require a statutory audit, the work financial statements, our responsibility We have been appointed as auditor under was performed to component materialities is to read the other information and, section 144 of the Charities Act 2011 ranging from £55m to £209m. The vast in doing so, consider whether the other and report in accordance with regulations majority of audit procedures were information is materially inconsistent with made under section 154 of that Act. performed at the Trust itself. the financial statements or our knowledge Our objectives are to obtain reasonable obtained in the audit or otherwise Net Assets assurance about whether the financial appears to be materially misstated. statements as a whole are free from If we identify such material material misstatement, whether due to inconsistencies or apparent material fraud or error, and to issue an auditor’s misstatements, we are required to report that includes our opinion. determine whether there is a material Reasonable assurance is a high level misstatement in the financial statements of assurance, but is not a guarantee or a material misstatement of the other that an audit conducted in accordance information. If, based on the work we with ISAs (UK) will always detect a have performed, we conclude that there material misstatement when it exists. is a material misstatement of this other Misstatements can arise from fraud or information, we are required to report that error and are considered material if, fact. We have nothing to report in respect individually or in the aggregate, they of these matters. could reasonably be expected to influence the economic decisions Full audit scope ...... 99% Responsibilities of the Trustee of users taken on the basis of these Review at group level ...... 1% financial statements. As explained more fully in the Trustee’s responsibilities statement, the Trustee A further description of our responsibilities Other subsidiaries not in audit scope is responsible for the preparation of the for the audit of the financial statements is within the Group contributed to less than financial statements and for being satisfied located on the Financial Reporting 1% of net assets. Analytical procedures that they give a true and fair view, and for Council’s website at: www.frc.org.uk/ were performed at Group level for these such internal control as the directors auditorsresponsibilities. This description non-significant subsidiaries. determine is necessary to enable the forms part of our auditor’s report. At the Group level we also tested the consolidation process.

55 Wellcome Trust Annual Report and Financial Statements 2017 Independent Auditor’s Report

To the Trustee of the Wellcome Trust (continued)

Use of our report Other matters This report is made solely to the Trustee Auditor tenure in accordance with section 144 of the Following the recommendation of the Charities Act 2011 and regulations made audit committee we were appointed under section 154 of that Act and for no by the Trust at its Board of Governor’s other purpose. Our audit work has been meeting on 14 December 2015 to audit undertaken so that we might state to the the financial statements of the Trust for Trustee those matters we are required to the period ending 30 September 2016 state to them in an auditor’s report and and subsequent financial periods. for no other purpose. To the fullest extent permitted by law, we do not accept or Our total uninterrupted period of assume responsibility to anyone other than engagement is 2 years, covering periods the Charity and the Charity’s Trustee as from our appointment through to the a body, for our audit work, for this report, period ending 30 September 2017. or for the opinions we have formed. Consistency of the audit report with the additional report to the Report on other legal and audit committee regulatory requirements Our audit opinion is consistent with the additional report to the audit committee Matters on which we are required we are required to provide in accordance to report by exception with ISAs (UK). Adequacy of explanations received and accounting records The engagement partner on the audit Under the Charities Act 2011 we are resulting in this independent auditor’s required to report to you if, in our opinion: report is Terri Fielding. • we have not received all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the Trust; or • the Trust financial statements are not in agreement with the accounting records Deloitte LLP and returns. Statutory Auditor We have nothing to report in respect London of these matters. 11 December 2017 Deloitte LLP is eligible for appointment Consistency of the Trustee’s Report as auditor for the charity by virtue of its with the Financial Statements eligibility for appointment as audit of Under the Charities Act 2011 a company under section 1212 of the we are required to report to you if, Companies Act 2006. in our opinion the information given in the Trustee’s Report is inconsistent in any material respect with the Financial Statements. We have nothing to report arising from our review.

56 Wellcome Trust Annual Report and Financial Statements 2017

Consolidated Statement of Financial Activities for the year ended 30 September 2017

Restricted Unrestricted Note funds funds 2017 2016 £m £m £m £m £m Income from investments Dividends and interest 3 - 348.0 348.0 308.3 Rental income - 37.4 37.4 44.2 Other income - 0.9 0.9 1.6 - 386.3 386.3 354.1 Charitable Income Grants receivable 4(a) 21.9 - 21.9 17.8 Other charitable income 4(b) 11.6 5.5 17.1 18.4 Total Income 33.5 391.8 425.3 390.3

Expenditure on Raising Funds Management fees and other investment costs 5(a) - (86.1) (86.1) (118.8) Interest payable on bond liability - (59.7) (59.7) (59.3) Expenditure on Charitable Activities 6 (20.6) (1,113.8) (1,134.4) (992.3) Total Expenditure (20.6) (1,259.6) (1,280.2) (1,170.4) Net realised and unrealised gains on investments 16(f) - 2,797.5 2,797.5 3,469.4 Realised gain on disposal of subsidiary 22 124.8 124.8 - Unrealised gain on mixed motive investments 16(d) 137.9 137.9 - Net income before taxation 12.9 2,192.4 2,205.3 2,689.3 Taxation 13 - (44.8) (44.8) 36.9 Net income after taxation 12.9 2,147.6 2,160.5 2,726.2 Actuarial gains/(losses) on defined benefit pension schemes 11(e)(i) - 154.3 154.3 (161.2)

Net movement in funds 12.9 2,301.9 2,314.8 2,565.0 Funds at start of year 21 8.3 19,553.3 19,561.6 16,978.2 Non-controlling interests - 0.6 0.6 18.4 Funds at end of year 21 21.2 21,855.8 21,877.0 19,561.6

There are no gains or losses apart from those recognised above. All income is derived from continuing activities. An analysis of the movement of Funds in 2017 is shown in note 21.

58 Wellcome Trust Annual Report and Financial Statements 2017 Consolidated Balance Sheet as at 30 September 2017

2017 2016 Note £m £m Tangible fixed assets 14(a) 435.0 448.2 Intangible fixed assets 15 - 10.5 Investment assets Quoted investments 16(a) 13,147.8 11,347.6 Unquoted investments 16(a) 9,611.4 9,339.9 Investment properties 16(a) 1,390.5 1,408.0 Derivative financial instruments 16(b) 178.6 148.0 Investment cash and certificates of deposit 16(c) 946.7 916.9 Other investment assets 16(c) 445.4 494.8 Social investments Mixed motive investments 16(d) 457.2 - Programme related investments 16(e) 6.4 5.9 Total Fixed Assets 26,619.0 24,119.8 Current assets Stock 2.2 2.2 Debtors 17 36.7 22.3 Cash at bank and in hand 15.7 56.1 Total Current Assets 54.6 80.6 Creditors falling due within one year 18 (1,181.8) (1,118.3) Net current liabilities (1,127.2) (1,037.7) Total assets less current liabilities 25,491.8 23,082.1 Creditors falling due after one year 18 (3,247.9) (3,047.6) Provision for liabilities and charges 19 (119.0) (80.0) Non-controlling Interests - (14.1) Net assets excluding pension deficits 22,124.9 19,940.4 Defined benefit pension schemes’ deficits 11(e)(ii) (247.9) (378.8) Net assets including pension deficits 21,877.0 19,561.6 Funds of the charity Restricted Funds 21 21.2 8.3 Unrestricted Funds 21 21,855.8 19,553.3

Total Funds 21,877.0 19,561.6

The Financial Statements on pages 58–116 were approved and authorised for issue by The Wellcome Trust Limited, as Trustee, on 11 December 2017 and signed on its behalf by:

Baroness Manningham-Buller Professor Dame Kay Davies Chair Deputy Chair

59 Wellcome Trust Annual Report and Financial Statements 2017 Statement of Financial Activities of the Trust for the year ended 30 September 2017

2017 2016 Note £m £m Income from Investments Dividends and interest 3 323.2 309.2 Rental income 34.8 37.2 358.0 346.4 Charitable income Grants receivable 4(a) - 0.8 Other charitable income 4(b) 11.9 119.2 Total Income 369.9 466.4

Expenditure on Raising Funds Management fees and other investment costs 5(a) (70.7) (66.5) Interest payable to group undertakings (27.1) (24.7) Interest payable on bond liability (20.4) (20.0) Expenditure on Charitable Activities 6 (1,090.3) (958.5) Total Expenditure (1,208.5) (1,069.7) Net realised and unrealised gains on investments 16(f) 2,928.8 3,365.0 Net Income 2,090.2 2,761.7 Actuarial gains/(losses) on defined benefit pension schemes 11(e)(i) 75.6 (63.3)

Net movement in funds 2,165.8 2,698.4 Funds at start of year 19,606.1 16,907.7 Funds at end of year 21,771.9 19,606.1

There are no gains or losses apart from those recognised above. All income is derived from continuing activities. All material funds are unrestricted.

60 Wellcome Trust Annual Report and Financial Statements 2017 Balance Sheet of the Trust as at 30 September 2017

2017 2016 Note £m £m Tangible fixed assets 14(b) 230.9 239.8 Investment assets Quoted investments 16(a) 12,505.7 10,726.1 Unquoted investments 16(a) 8,551.8 8,229.0 Investment properties 16(a) 1,229.3 1,241.1 Derivative financial instruments 16(b) 178.6 148.0 Investment cash and certificates of deposit 16(c) 946.6 904.6 Other investment assets 16(c) 439.2 441.8 Subsidiary and other undertakings 2,332.9 1,981.8 Social investments Programme related investments 16(e) 6.4 5.9 Total Fixed Assets 26,421.4 23,918.1 Current assets Debtors 17 13.6 19.0 Cash at bank and in hand 8.7 5.4 Total Current Assets 22.3 24.4 Creditors falling due within one year 18 (2,092.3) (1,899.3) Net current liabilities (2,070.0) (1,874.9) Total assets less current liabilities 24,351.4 22,043.2 Creditors falling due after one year 18 (2,413.3) (2,215.5) Provision for liabilities and charges 19 (53.3) (45.8) Net assets excluding pension deficit 21,884.8 19,781.9 Defined benefit pension scheme’s deficit 11(e)(ii) (112.9) (175.8) Net assets including pension deficit 21,771.9 19,606.1 Funds of the charity Unrestricted Funds 21,771.9 19,606.1 Total Funds 21,771.9 19,606.1

The Financial Statements on pages 58–116 were approved and authorised for issue by The Wellcome Trust Limited, as Trustee, on 11 December 2017 and signed on its behalf by:

Baroness Manningham-Buller Professor Dame Kay Davies Chair Deputy Chair

61 Wellcome Trust Annual Report and Financial Statements 2017 Consolidated Cash Flow Statement for the year ended 30 September 2017

2017 2016 Note £m £m Net income for the year (as per the Statement of financial activities) 2,314.8 2,565.0

Adjustments to exclude non-cash items and investment income and expenditure (Increase)/decrease in debtors (14.5) 20.9 Decrease in stock - 0.7 Decrease in intangible assets 10.5 - Increase in grant commitments 278.6 250.2 (Decrease)/increase in creditors and provisions (75.1) 135.1 Less gain on sale of Programme Related Investments (2.3) (2.7) Increase in provision for Programme Related Investments 22.9 23.1 Increase/(decrease) in other investment debtors 19.2 (56.7) Discounting of Grant Liability 6 65.3 41.2 Depreciation and Amortisation 24.9 31.6 Investment income (386.3) (354.1) Net realised and unrealised gains on investments 16(f) (2,797.5) (3,469.4) Non cash sale proceeds on disposal of subsidiary 22 (176.9) - Unrealised gain on mixed motive investments 16(f) (137.9) - Net cash flows from operating activities (854.3) (815.1)

Cash flows from investing activities: Investment income received 24(a) 386.2 349.4 Proceeds from sales of investment assets 24(c) 4,906.4 5,362.8 Purchase of investment assets 24(c) (4,417.1) (4,488.7) Purchase of tangible fixed assets 14(a) (15.5) (27.5) Net cash inflow/(outflow) upon settlement of derivative financial instruments 24(c) 49.5 (330.7) Net cash flows from investing activities 909.5 865.3

Cash flows from financing activities: Cash outflow for servicing of finance 24(b) (58.4) (58.0) Net cash flows from financing activities (58.4) (58.0)

Change in cash and cash equivalents during the year (3.2) (7.9) Cash and cash equivalents at the beginning of the year 973.0 911.7 Change in cash and cash equivalents due to exchange rate movements (7.3) 69.2 Cash and cash equivalents at the end of the year 962.5 973.0

Cash and cash equivalents include cash at bank and in hand, and investment cash and certificates of deposits.

62 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

1. Accounting policies

(a) Statement of compliance (b) Summary of significant Where a subsidiary has different accounting policies to the Group, The Financial Statements of the Wellcome accounting policies adjustments are made to those subsidiary Trust (the “Trust”) and the consolidated The principal accounting policies applied Financial Statements to apply the Group’s Financial Statements of the Trust and its in the preparation of these consolidated accounting policies when preparing the subsidiary undertakings (the “Group”) have and separate Financial Statements are consolidated Financial Statements. been prepared on a going concern basis set out below. These policies have and in accordance with applicable UK been consistently applied to all years The Trust consolidates four types of accounting standards (UK Generally presented, unless otherwise stated. subsidiary undertakings: Accepted Accounting Practice), including (i) charitable subsidiary undertakings Financial Reporting Standard 102 ‘The formed to pursue charitable objects Financial Reporting Standard applicable Basis of preparation closely allied to those of the Trust; in the United Kingdom and the Republic The preparation of Financial Statements of Ireland’ (“FRS 102”). In particular, in conformity with FRS 102 requires the (ii) non-charitable operating subsidiary they comply with the Charities Act 2011, use of certain significant accounting undertakings to conduct non-primary the Charities (Accounts and Reports) estimates. It also requires management to purpose trading; Regulations 2008 and the Statement of exercise its judgement in the process of (iii) a non-charitable financing subsidiary Recommended Practice ‘Accounting and applying the Group’s accounting policies. undertaking formed to issue listed Reporting by Charities’ published in 2015 The areas involving a higher degree of debt to finance Group activities; and (the “SORP”) in all material respects with judgement or complexity, or areas where the exception of the valuation of certain assumptions and estimates are significant (iv) non-charitable investment subsidiary joint ventures and associates as detailed to the Financial Statements are disclosed undertakings formed to hold under the Basis of Consolidation below. in note 2. investments and freehold property on behalf of the Trust. Wellcome Trust meets the definition of a public benefit entity under FRS 102. The Basis of consolidation A subsidiary is excluded from Financial Statements have been prepared The consolidated Financial Statements consolidation where the interest in under the historical cost convention, as include the Financial Statements of the the subsidiary is held as part of the modified by the revaluation of investments Trust and its subsidiary undertakings investment portfolio and its value to the on a basis consistent with prior years. together with the Group’s share of the Group is through fair value rather than results of associates and joint ventures as the medium through which the Group The functional currency of the Trust (other than those included as part of the carries out business and where it has not is considered to be Pounds Sterling investment portfolio discussed below) previously been consolidated in the because that is the currency of the made up to 30 September. Subsidiary consolidated Financial Statements under primary economic environment in which undertakings are entities over which the FRS 102. the Trust operates. The consolidated Trust has control. Control is the power to Financial Statements are also presented These subsidiaries are included at fair govern the financial and operating policies in Pounds Sterling. value within investments in accordance of an entity so as to obtain benefits from with 9.9B(a) of FRS 102. Wellcome Trust meets the definition of its activities. When the Group owns less a qualifying entity under the SORP and than 50% of the voting powers of an entity, Further detail on the Trust’s significant has therefore taken advantage of the but controls the entity by virtue of an subsidiary undertakings is provided in disclosure exemptions available to agreement with other investors that gives note 23. it in respect of its separate Financial it control of the financial and operating Statements, which are presented policies, it accounts for these as alongside the consolidated Financial subsidiaries. The Financial Statements Statements. Exemptions have been taken of subsidiaries are included from the date in relation to financial instruments and the that control commences until the date that presentation of a Cash Flow Statement. it ceases.

63 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

1. Accounting policies (continued)

A joint venture is a contractual equity method of accounting. The fair ownership have been transferred and the arrangement whereby the Group and one value of the associates and joint ventures amounts can be reliably estimated. or more parties undertake an economic held in the investment portfolio is included Charitable income for performance-related activity that is subject to joint control. The in Unquoted investments in note 16(a). grants is recognised when the expenditure Group considers that it has joint control The value of the Mixed Motive investment is incurred as this reflects the service where there is contractually agreed sharing is shown in note 16(d). levels. Income for non-performance- of control over an economic activity, and All intra-group transactions, balances, related grants is recognised when awarded exists only when the strategic, financial income and expenses are eliminated on as this represents entitlement. Capital and operating decisions relating to the consolidation of subsidiaries. Adjustments grants with no performance related activity require the unanimous consent of are made to eliminate the profit or loss conditions are recognised when the charity the parties sharing control (the ventures). arising on transactions with joint ventures is entitled, the receipt is probable and the The results of the joint ventures are or associates to the extent of the Group’s amount is measurable which is when the accounted for using the equity method of interest in the entity. Where subsidiaries, award letter is received. Any receipts that accounting unless the entity is held as part joint ventures and associates are held as do not meet these criteria are held as of the investment portfolio or as a Social part of the investment portfolio or as a deferred income. Investment as discussed below. Social Investment and measured at fair Gift aid income is recognised on an An associate is an entity, being neither a value, no elimination of intra-group items accruals basis when the receipt is both subsidiary nor a joint venture, in which the is undertaken. probable and measurable. Group holds a long-term interest and has significant influence. The Group considers Income it has significant influence where it has the Expenditure The Group recognises income at the power to participate in the financial and fair value of the consideration received Expenditure and liabilities are recognised operating decisions of the associate. or receivable when the significant risks as soon as there is a legal or constructive The results of the associate are accounted and rewards of ownership have been obligation committing the Group to that for using the equity method of accounting transferred, the amount of revenue can be expenditure, it is probable that settlement unless the entity is held as part of the measured reliably, it is probable that future will be required and the amount of the investment portfolio or as a Social economic benefits will flow to the Group obligation can be measured reliably. All Investment as discussed below and and when the specific criteria relating to the expenditure is recognised on an accruals on page 68. each of Group’s income channels have basis, with the exception of grants as Where an associate or joint venture is held been met, as described below. All amounts noted below. as part of the investment portfolio or as are net of discounts and rebates allowed Expenditure on raising funds relates to the a Mixed Motive Investment and its value and value added taxes if applicable. management of the investment portfolio to the Group is through fair value rather Dividend income including any recoverable and includes the allocation of support than as medium through which the Group tax is recognised from the ex-dividend costs relating to this activity. carries out business, the associate or joint date when it becomes receivable. venture is measured at fair value with Expenditure on charitable activities is changes in fair value recognised in profit Rental income is recognised on an analysed between grant funding and the or loss (Statement of Financial Activities) accruals basis, and is recognised on cost of activities performed directly by in the consolidated Financial Statements a straight line basis unless there is the Trust and the Group together with in accordance with 14.4B or 15.9B of compelling evidence that benefits do not the associated support costs, including FRS 102. The fair value is determined in accrue evenly over the period of the lease. governance costs. Governance costs are accordance with the accounting policies the costs of governance arrangements Interest income is recognised using the for Financial Assets and Liabilities detailed that relate to the general running of effective rate of interest. on pages 66–67. This is a departure from the Group as opposed to those costs the SORP which requires that all such Other investment income is recognised associated with investments or charitable investments are accounted for using the when the significant risks and rewards of activities. These costs include such items

64 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

1. Accounting policies (continued) as internal and external audit, legal advice Short term benefits a legal or constructive obligation to make for Governors and costs associated with Short term benefits, including holiday payments under the plan as a result of constitutional and statutory requirements. pay, private medical insurance, medical past events and a reliable estimate of the assessments, permanent disability obligation can be made. Where possible, expenditure incurred insurance and life insurance are that relates to more than one activity Long-term incentive plans recognised as an expense in the is apportioned. The method of The cost is recognised in the Statement period in which the service is received. apportionment uses the most of Financial Activities over the period appropriate basis for each cost type. Pension schemes of service to which the plan relates. The Group pension arrangements are Where amounts are left in the plan after Grants awarded to institutions outside detailed in note 11(e). vesting date, any adjustment in value the Group are recognised as expenditure between the date of vesting and the in the year in which the grant is formally The contributions to defined contribution date of payment is recognised in the approved by the Trust and has been plans are recognised as an expense when Statement of Financial Activities. communicated to the recipient, except to they are due. Amounts not paid are shown the extent that it is subject to conditions in accruals in the balance sheet. The assets Termination benefits that enable the Trust to revoke the award. of the plan are held separately from the Termination benefits are payable when Group in independently administered funds. employment is terminated by the Group, The provision for multi-year grants is or whenever an employee accepts recognised at its present value where The liability recognised in the balance voluntary redundancy in exchange for settlement is due over more than one year sheet in respect of a defined benefit plan these benefits. The Group recognises from the date of the award, there are no is the present value of the defined benefit termination benefits when it is unfulfilled performance conditions under obligation at the end of the reporting date demonstrably committed to either (i) the control of the Trust that would permit less the fair value of plan assets at the terminating the employment of current it to avoid making the future payments, reporting date. Actuarial gains and losses employees according to a detailed formal settlement is probable and the effect of the arising from experience adjustments and plan without possibility of withdrawal or discounting is material. The discount rate changes in actuarial assumptions are (ii) providing termination benefits as a used is regarded by the Board of Governors charged or credited to “Actuarial gains and result of an offer of voluntary redundancy. as the most current available estimate of losses on defined benefit pension schemes” the opportunity cost of money reflecting in the Statement of Financial Activities. Fund accounting the time value of money to the Trust. The The cost of the defined benefit plans, The Group’s charitable funds consist impact of the discount rate is discussed recognised in charitable expenditure of restricted funds, held in Genome in note 2 (significant accounting estimates as employee costs comprises: Research Limited, and unrestricted funds. and assumptions). Restricted funds are subject to specific (a) the increase in pension benefit liability conditions imposed by the donors. Research expenditure is written off in the arising from employee service during Statement of Financial Activities in the the period; and year in which it is incurred and is included Intangible assets (b) the cost of plan introductions, benefit in Expenditure on Charitable Activities. changes, curtailments, settlements, Intellectual Property and administration expenses. Intellectual property includes amounts Employee benefits spent by the Group acquiring rights to Other retirement benefits are included patents, technology and know-how that will The Group provides a range of benefits within provisions and are valued at the be used to generate value within the Group. to employees, including annual bonus present value of the defined benefit arrangements, long-term incentive obligation at the end of the reporting date. The useful life over which intangible assets plans, paid holiday arrangements and are amortised depends on management’s defined benefit and defined contribution Annual bonus plan estimate of the period over which economic pension plan. These are detailed in the An expense is recognised in the Statement benefit will be derived from the asset. Remuneration Report on page 40. of Financial Activities when the Group has This ranges from 3 years to 20 years.

65 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

1. Accounting policies (continued)

Tangible fixed assets Heritage assets charged to the Statement of Financial Activities. The annual rentals for operating Tangible fixed assets, excluding land The Trustee does not consider that reliable leases are charged to the Statement of and investment properties, held by the cost or valuation information can be Financial Activities on a straight-line basis Group and the Trust are stated at cost obtained for the vast majority of heritage over the lease term. less accumulated depreciation and any assets held by the Trust. This is because accumulated impairment losses. Land is of the diverse and specialist nature of the stated at cost less any accumulated assets held, the number of assets held Financial assets and liabilities and the lack of comparable market values. impairment losses. Cost includes the The Group has chosen to adopt Sections The cost of valuing the entire collection original purchase price and costs directly 11 and 12 of FRS 102 in respect of would be onerous compared with the attributable to bringing the asset to its financial instruments. Financial assets benefit derived by users of the Financial working condition for its intended use. and financial liabilities are recognised Statements in assessing the Trustee’s Fixed assets are subject to review for when the Group becomes a party to the stewardship of the assets. Assets are impairment when there is an indication of contractual provisions of the instrument. a reduction in their carrying value. They are recognised on the Balance Sheet if they Financial assets which qualify as basic reviewed annually and any impairment is meet the definition of a heritage asset, financial instruments as laid out in FRS 102 recognised in the year in which it occurs. their value can be reliably measured and they are considered to be material. paragraph 11.8, including trade and other Assets in the course of construction are Further details are provided in note 14. receivables and cash and bank balances, stated at cost and are not depreciated are subsequently valued at amortised cost until available for use. Leased assets and assessed for impairment at the end of Depreciation is calculated using the Where assets are financed by leasing each reporting period. straight-line method to allocate the cost agreements that give rights to the lessee Other financial assets, including of each asset less its residual value over approximating to ownership (finance investments, are subsequently valued its estimated useful life. Residual value leases) the assets are treated as if they at fair value. represents the estimated amount that had been purchased outright by the would currently be obtained from disposal lessee. The amount capitalised is the Financial liabilities and equity instruments of an asset, after deducting estimated present value of the minimum lease are classified according to the substance costs of disposal if the asset were already payments payable during the lease term. of the contractual arrangements entered of the age and in the condition expected The corresponding lease commitments into. All financial assets and liabilities are at the end of its useful life. Depreciation are shown as obligations to the lessor. initially measured at transaction price commences from the date an asset is Interest is charged over the duration of (including transaction costs), except for brought into service. The useful lives for the lease in proportion to the balance those financial assets classified as at fair depreciation purposes for the principal outstanding. Depreciation on the relevant value through profit or loss, which are categories of assets are: assets and interest on the lease are initially measured at fair value (normally the transaction price excluding transaction costs), unless the arrangement constitutes Years a financing transaction. If an arrangement Buildings 50 constitutes a financing transaction, Leasehold Land and Buildings Over the term of the lease the financial asset or financial liability is Other Plant and Equipment. Fixtures and fittings 3 to 15 measured at the present value of the future payments discounted at a market rate of Computer Equipment 3 to 5 interest for a similar debt instrument.

66 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

1. Accounting policies (continued)

Financial assets and liabilities are only (iii) Derivative financial instruments at amortised cost using the effective offset in the Balance Sheet when there Derivative financial instruments are interest rate method. The fair value of the exists a legally enforceable right to set off used as part of the Group’s portfolio risk Bonds disclosed within the notes to the the recognised amounts and the Group management and as part of the Group’s Financial Statements is the market value of intends either to settle on a net basis, portfolio management and investment the Bonds at the year end date. The Group or to realise the asset and settle the liability return seeking strategy. The Group’s is not required to, and therefore does not, simultaneously. use of derivative financial instruments recognise any adjustment to fair value in includes equity index-linked futures the Balance Sheet and the Statement of Financial assets are derecognised only and options, commodities futures and Financial Activities. when (a) the contractual rights to the cash options, options on individual equities, flows from the financial asset expire or are warrants and currency forwards. Investment properties settled, (b) the Group transfers to another party substantially all of the risks and The Group’s exchange traded options are Investment properties for which fair value rewards of ownership of the financial stated at fair value, equivalent to the market can be measured reliably on an ongoing asset, or (c) the Group, despite having value, using the bid price, on the relevant basis are measured at fair value annually retained some, but not all, significant risks exchange. Long-term linked currency with any change recognised in the and rewards of ownership, has transferred forwards are stated at management’s Statement of Financial Activities. The fair control of the asset to another party. estimate of fair value, using the market values are based on valuations estimated value of a transactions with equivalent cash by third party professional valuers; Financial liabilities are derecognised flows and market observable forward rates. however, where properties are acquired only when the obligation specified in The Group’s warrants are held at the fair close to the balance sheet date, valuations the contract is discharged, cancelled value determined by management. These are not obtained because the acquired or expires. will generally reflect the valuations used properties are recorded at open market Investment valuation policies and by the Group’s co-invest partners where value upon initial recognition, which procedures are reviewed by the Valuation these exist and where there is confidence management considers to be a reasonable Group which is responsible for valuation in their approach. Valuations will generally estimate of open market value at the decisions. Specific policies are detailed be intrinsic value, as the best estimate of balance sheet date. Property transactions below and the detail of the application of fair value, but for some warrant holdings are recognised on the date of completion. these policies is disclosed in the relevant the use of a Black-Scholes valuation note to the accounts where appropriate. methodology will be used by management. Investments in subsidiaries The fair value of contract positions is Subsidiary undertakings established (i) Quoted investments recognised in the Balance Sheet and gains purely to hold investments are included Quoted investments comprise publicly and losses on the contracts are recognised in the Trust’s Balance Sheet at their net quoted, listed securities including shares, in the Statement of Financial Activities. asset value, which represents the fair bonds and units. Quoted investments are value of their underlying net assets. stated at fair value at the balance sheet (iv) Investment cash and certificates date. The basis of fair value for quoted of deposit, other investment assets Securities lending programme investments is equivalent to the market and other investment liabilities The Group undertakes securities lending value, using the bid-price. Asset sales Investment cash and certificates of arrangements whereby securities are and purchases are recognised at the date deposit, and debtors and creditors loaned to external counterparties for a set of trade. arising as part of the investment period of time (“the loan period”). The portfolio are stated at their fair value. (ii) Unquoted investments Group receives cash collateral of greater Unquoted investments are valued at (v) Bond liabilities value than the securities loaned from each management’s best estimate of fair value. Bonds are initially measured at the counterparty for the duration of the loan Further details are provided in note 2 proceeds of issue less all transaction costs period and receives a share of the interest (Significant accounting judgements and directly attributable to the issue. After earned on the cash collateral held. Under key sources of estimation uncertainty). initial recognition, the Bonds are measured the terms of the securities lending

67 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

1. Accounting policies (continued) agreements, the Group retains substantially be required to settle the obligation and Wellcome Trust. Foreign tax incurred all the risks and rewards of ownership of the amount has been reliably estimated. by subsidiaries operating overseas is the loaned securities, and the contractual Provisions are discounted to present charged as it is incurred. rights to any cash flows relating to the value where the effect is material. In common with many other charities, securities. The loaned securities are not the charitable members of the Group derecognised on the Group’s and Trust’s Contingencies are unable to recover the majority of Balance Sheets. The cash collateral and the Contingent liabilities are potential future cash Value Added Tax (“VAT”) incurred on obligation to return the cash collateral to the outflows, where the likelihood of payment is expenditure. The amount of VAT that lender are recognised in the Group’s and considered more than remote, but is not cannot be recovered is included within Trust’s Balance Sheets. considered probable or cannot be measured reliably. These are not recognised but are the underlying cost to which it relates. Social investments disclosed in the Financial Statements. Current tax, including UK corporation tax Contingent assets are not recognised. and foreign tax, is provided at amounts Mixed motive investments Contingent assets are potential future expected to be paid (or recovered) using These are valued at fair value. For a listed inflows of economic benefits where the the tax rates and laws that have been entity, this value represents the bid price likelihood of receipt is considered more enacted or substantively enacted by the of the shares in the market in which it is than remote, but is not considered balance sheet date. listed. These are discussed in note 16(d). probable or cannot be measured reliably. Deferred tax is recognised in respect of Programme related investments These are not recognised but are all timing differences that have originated These are disclosed under social disclosed in the Financial Statements. but not reversed at the balance sheet investments in the balance sheet and date. Timing differences are differences are held at cost less impairment as it is Foreign currencies between the taxable profits and results considered that the fair value cannot be Transactions denominated in foreign as stated in the Financial Statements. reliably estimated. Where the decision is currencies are translated into Pounds Unrelieved tax losses and other deferred taken that a programme related investment Sterling at the exchange rates ruling at the tax assets are recognised only to the will generate an appropriate level of return date of transaction. Monetary assets and extent that, on the basis of all available it will be transferred to the main investment liabilities denominated in foreign currencies evidence, it can be regarded as more portfolio and measured accordingly. These are translated into Pounds Sterling at the likely than not that there will be suitable are discussed in note 16(e). rate ruling at the balance sheet date. All taxable profits from which the future foreign exchange gains and losses, realised reversal of the underlying timing Stock and unrealised, are recognised in the differences can be deducted. Stock consists of consumables and Statement of Financial Activities. Deferred tax is recognised on fair goods for sale and is stated at the market value adjustments of investment lower of cost and net realisable value. Taxation subsidiaries even though the subsidiaries Cost is determined on a first-in-first-out The charitable members of the Group are will be able to donate the profits from the basis. Where necessary, provision is exempt from taxation on their income future realisation of the underlying assets made for obsolete, slow moving and and gains falling within Part 11 of the so that no current tax charge will arise. defective stock. Corporation Tax Act 2010 or section 256 of the Taxation of Chargeable Gains Act Deferred tax is measured using the tax Provisions and contingencies 1992 to the extent that they are applied rates and laws that have been enacted to their charitable purposes. or substantively enacted by the balance Provisions sheet date that are expected to apply to Provisions are recognised when the The non-charitable subsidiaries, although the reversal of the timing difference. Group has a present legal or constructive subject to taxation, do not pay UK obligation as a result of past events, it is Corporation Tax because their policy is to probable that an outflow of resources will donate taxable profits as Gift Aid to the

68 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

2. Significant accounting judgements and key sources of estimation uncertainty

Estimates and judgements are continually (i) Private equity, venture and property (iv) Investment operating subsidiaries evaluated and are based on historical funds – Value at 30 September 2017: and joint ventures – Value at experience and other factors, including £5,233 million 30 September 2017: £815 million expectations of future events that are These funds are valued externally by their As noted in the Basis of Consolidation believed to be reasonable under the fund managers and the controls operating on page 63, certain subsidiaries and joint circumstances. at the underlying funds are carefully ventures and associates are excluded considered. In exceptional cases where from consolidation where the interest in Significant judgements management is not satisfied with the the entity is held as part of the investment robustness of these external valuations, portfolio. Rather than holding these in applying the Group’s these funds are internally valued, and entities to carry out business, they are accounting policies then certain judgemental assumptions held and measured on a fair value basis. The following are the significant are required relating to the probability The most significant item in determining judgements, apart from those involving of future distributions from the funds. the value of these entities is property, estimations (which are dealt with which is valued using external valuers (ii) Direct investments – Value at separately below), that management employing RICS valuation methodology. 30 September 2017: £859 million has made in the process of applying the The majority of these are made with B. Grant liabilities – Value at Group’s accounting policies and that have co-investors (who are funds within our 30 September 2017: £2,242 million the most significant effect on the amounts private equity, venture and property The initial liability recognised is based recognised in Financial Statements: funds portfolio discussed above) and on actual amounts awarded, but as the the co-investor valuation is used to awards are paid out over a number of Fair value measurement and determine the fair value. Where there is years this value is discounted based on valuation processes no co-investor, these investments are expected future cash outflows. Internal Some of the Group’s assets and liabilities internally valued, generally using the judgement is required in selecting the are measured at fair value for financial price of recent investment. appropriate discount rate as well as reporting purposes. The Group applies determining when the liability will be judgement in selecting the appropriate (iii) Investment properties – Value at called down as a claim to be paid. valuation techniques for calculating the 30 September 2017: £1,391 million fair value for reporting purposes. These are valued based on external C. Defined benefit pension scheme valuers employing RICS valuation liability – Value at 30 September A. Unquoted investments methodology who are required to apply 2017: £248 million Judgement is required in valuing the a moderate amount of judgement. The valuations are based on a model items listed below. This is primarily in provided by external qualified actuaries the form of judgement applied by third who exercise a judgement in determining parties. Where management applies the actuarial assumptions required by further judgement this is detailed below. FRS 102. Internal judgement is applied by There are no items where the amount of management in agreeing the appropriate judgement is considered to be critical: corporate bond and inflation rate curves to use.

69 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

2. Significant accounting judgements and key sources of estimation uncertainty (continued)

Significant accounting A. Defined benefit pension scheme estimates and assumptions Management is required to apply appropriate assumptions to estimate the discount rate and rate of inflation used for the calculation of the pension The Group makes estimates and scheme liabilities. assumptions to produce the Financial Statements. The resulting accounting A sensitivity analysis is provided below: estimates will, by definition, seldom equal Impact on net pension Estimate Change in estimate the related actual results. The estimates liabilities and assumptions that have a significant Increase/decrease of Decrease/increase by risk of causing a material adjustment to Discount rate the carrying amounts of assets and 0.5% p.a. £98.2m (13.9%) liabilities within the next financial year Increase/decrease of Increase/decrease by Rate of inflation are addressed opposite. 0.5% p.a. £67.8m (9.6%)

B. Grant liabilities The initial liability recognised is based on actual amounts awarded but as the awards are paid out over a number of years, this value is discounted based on expected future cash outflows. The rate applied to discount the grant liabilities payable within more than twelve months requires an estimate of the opportunity cost of income from investments foregone by the Group. A sensitivity analysis is provided below:

Impact on grant Estimate Change in estimate liabilities

Rate used to discount Increase/decrease Decrease/increase by grant liability of 0.5% p.a. £19 million (0.8%)

70 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

3. Dividends and interest

Group Trust

2017 2016 2017 2016 £m £m £m £m Dividends from UK equities 92.1 75.1 86.5 75.1 Dividends and interest from subsidiaries - - - 17.7 Dividends from overseas equities 205.6 175.4 188.4 164.2 Income from unquoted investments 47.1 54.8 46.0 50.4 Interest on cash and cash deposits 0.9 0.4 0.8 0.3 Securities lending income 2.3 2.6 1.5 1.5 348.0 308.3 323.2 309.2

71 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

4. Other income

(a) Grants receivable

Group Trust 2017 2016 2017 2016 £m £m £m £m 21.9 17.8 - 0.8

Grants receivable mainly represents awards to the Trust’s subsidiary undertaking Genome Research Limited by other funders, notably government grants of £7.2 million (2016: £6.3 million).

(b) Other charitable income

Group Trust 2017 2016 2017 2016 £m £m £m £m 17.1 18.4 11.9 119.2

Included in other income above for the Trust are Gift Aid donations, which are equal to the estimated taxable profit of each subsidiary undertaking listed below, totalling £8.2 million (2016: £111.8 million). The level of these donations is driven by the gains and losses generated in each individual entity. Details of significant group undertakings are given in note 23.

2017 2016 £m £m Wellcome Trust Trading Limited 0.8 1.2 Wellcome Trust Finance plc 3.4 3.5 Wellcome Trust GP Limited 0.1 - Wellcome Trust Investments 1 Unlimited - 59.2 Wellcome Trust Investments 2 Unlimited - (23.8) Wellcome Trust Investments 3 Unlimited - (0.2) Wellcome Trust Residential 1 Limited 0.8 5.1 Wellcome Trust Residential 2 Limited 0.1 1.0 Gower Place Investments Limited 3.0 65.8 8.2 111.8

72 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

5. Management fees and other investment costs

(a) Total investment costs

Group Trust 2017 2016 2017 2016 £m £m £m £m External investment management fees 41.8 41.0 39.7 38.2 Internal investment administration 25.7 22.3 25.5 22.3 Investment support cost allocation 5.6 6.5 5.5 6.0 Syncona Investment Administration 6.0 27.3 - - Operating Costs 7.0 21.7 - - 86.1 118.8 70.7 66.5

The amount accrued for Long Term Incentive Plans included in the internal investments administration costs above was £11.3 million (2016: £7.4 million). Senior staff in the Investments team receive performance-based remuneration, as noted on page 42, which can give rise to variations in the amount charged to internal investment administration year on year. In 2012, the Trust set up the Syncona LLP group as an independent investment subsidiary group focused on the health and biotechnology sectors. The Trust sold its 100% interest in the Syncona LLP group in December 2016. Further details are provided in note 22. As Syncona LLP group was a subsidiary for only 2.5 months of the 2017 financial year, Syncona LLP group administration and operating costs are only reflected for this period of time. The methodology behind the support cost allocation is detailed in note 9. The bandings tables in notes 5(b) and 5(c) show employees working on the investment activities of the Group and distinguish between those of the Trust and of the Syncona LLP group.

73 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

5. Management fees and other investment costs (continued)

(b) Investment team salary bandings The number of employees working within the Investment team whose total benefits (excluding employer pension contributions and employer National Insurance Contributions) fell within the following bands is shown in the table below.

2017 2016 £60,000-£69,999 3 5 £70,000-£79,999 2 - £80,000-£89,999 1 1 £90,000-£99,999 1 1 £100,000-£109,999 3 2 £110,000-£119,999 3 1 £120,000-£129,999 1 4 £130,000-£139,999 1 1 £140,000-£149,999 3 1 £170,000-£179,999 2 1 £210,000-£219,999 - 1 £220,000-£229,999 1 1 £240,000-£249,999 - 1 £250,000-£259,999 - 1 £260,000-£269,999 - 1 £270,000-£279,999 - 2 £290,000-£299,999 - 1 £300,000-£309,999 1 - £320,000-£329,999 1 - £360,000-£369,999 2 - £420,000-£429,999 1 - £580,000-£589,999 - 1 £680,000-£689,999 - 1 £700,000-£709,999 - 1 £810,000-£819,999 - 1 £850,000-£859,999 1 - £910,000-£919,999 1 - £1,060,000-£1,069,999 1 - £1,160,000-£1,169,999 1 - £1,760,000-£1,769,999 - 1 £1,860,000-£1,869,999 - 1 £2,470,000-£2,479,999 1 - £2,730,000-£2,739,999 1 - £3,050,000-£3,059,999 - 1 £3,700,000-£3,709,999 1 - 33 32

74 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

5. Management fees and other investment costs (continued)

(c) Syncona LLP group team salary bandings The number of employees working within the Syncona LLP group whose total benefits (excluding employer pension contributions and employer National Insurance Contributions) fell within the following bands is shown in the table below.

2017 2016 £60,000-£69,999 - 10

£70,000-£79,999 - 5

£80,000-£89,999 - 7

£90,000-£99,999 - 6

£100,000-£109,999 - 2

£110,000-£119,999 1 4

£120,000-£129,999 - 6

£130,000-£139,999 - 5

£140,000-£149,999 - 2

£150,000-£159,999 - 5

£160,000-£169,999 - 1

£170,000-£179,999 - 2

£180,000-£189,999 - 1

£190,000-£199,999 - 2

£210,000-£219,999 - 1

£220,000-£229,999 - 1

£240,000-£249,999 - 1

£250,000-£259,999 - 1

£260,000-£269,999 - 1

£280,000-£289,999 - 1

£310,000-£319,999 - 1

£330,000-£339,999 - 1

1 66

Syncona LLP group was a subsidiary for only 2.5 months of the 2017 financial year. The one individual included in the bandings above received an additional relocation allowance, which was paid in this period.

75 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

6. Charitable activities

Allocated Total Total Grant funding Direct support 2017 2016* Group £m £m £m £m £m Science 636.4 144.8 50.8 832.0 723.3 Culture & Society 56.5 31.9 23.3 111.7 109.6 Innovations 87.7 19.3 9.0 116.0 82.1 Priority Areas 151.1 4.4 6.2 161.7 - Strategy - - - - 79.7 931.7 200.4 89.3 1,221.4 994.7 Present value adjustment for discounting of grant liability (65.3) - - (65.3) (41.2) Foreign exchange revaluation of grant liability (21.7) - - (21.7) 38.8 Total 844.7 200.4 89.3 1,134.4 992.3

Grant funding and direct charitable activities totalled £1,132.1 million (2016: £949.7 million). Support costs related to the grant funding activities of the Group include; Science £33.3 million (2016: £23.0 million), Culture & Society £15.2 million (2016: £14.0 million), Innovations £7.5 million (2016: £7.6 million), Priority Areas £6.0 million (2016: £ nil) and Strategy £ nil (2016: £12.3 million).

Allocated Total Total Grant funding Direct support 2017 2016* Trust £m £m £m £m £m Science 742.8 12.3 33.8 788.9 690.2 Culture & Society 56.5 30.9 23.3 110.7 108.9 Innovations 87.7 19.3 9.0 116.0 82.1 Priority Areas 151.1 4.4 6.2 161.7 - Strategy - - - - 79.7 1,038.1 66.9 72.3 1,177.3 960.9 Present value adjustment for discounting of grant liability (65.3) - - (65.3) (41.2) Foreign exchange revaluation of grant liability (21.7) - - (21.7) 38.8 Total 951.1 66.9 72.3 1,090.3 958.5

Grant funding and direct charitable activities totalled £1,105.0 million (2016: £930.0 million). Support costs related to the grant funding activities of the Trust include; Science £33.2 million (2016: £23.1 million), Culture & Society £15.4 million (2016: £14.1 million), Innovations £7.5 million (2016: £7.6 million), Priority Areas £6.0 million (2016: £ nil) and Strategy £ nil (2016: £12.3 million).

*The figures for 2016 have been restated to exclude the foreign exchange revaluation of the grant liability for both the Group and the Trust.

7. Grants awarded

Grants are generally awarded to a particular individual, although the actual award is made to the host institution. Small grants may be awarded directly to individuals for the purpose of travel and for public engagement with science. Grants awarded during the year are analysed by organisation in the table below. The grants awarded to the University of Cambridge in 2017 are higher than in 2016 due to awards made to the Wellcome Trust Centres (the and the Cambridge Stem Cell Institute), an increase in Henry Dale Fellowships and PhD renewals. The grant to the Coalition for Epidemic Preparedness Innovation (“CEPI”) is to develop vaccines for epidemic infections and the grant to Boston University is for the transatlantic partnership, Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator (“CARB-X”). Both of these initiatives are discussed in the Review of Charitable Activities on page 16. The grants included within ‘Grants to other organisations’ for 2017 totalled less than £6.5 million (2016: £5.0 million) in value for each organisation. 76 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

7. Grants awarded (continued)

Culture & Science Society Innovations Priority Areas 2017 2016 Group £m £m £m £m £m £m University of Cambridge 114.3 2.9 3.5 - 120.7 59.5 82.4 5.4 5.2 5.6 98.6 134.4 Coalition for Epidemic Preparedness Innovations, Norway - - - 82.2 82.2 - University College London 63.6 0.4 6.6 0.8 71.4 102.4 University of Edinburgh 42.3 1.4 3.3 0.6 47.6 31.1 35.1 0.5 7.1 0.2 42.9 34.3 London School of Hygiene & Tropical Medicine 21.7 0.1 5.4 5.6 32.8 12.3 University of Dundee 11.1 - 21.1 - 32.2 12.2 Boston University, United States of America - - - 30.0 30.0 - Liverpool School of Tropical Medicine 28.8 - 0.5 - 29.3 6.4 King's College London 20.0 0.3 6.9 - 27.2 27.6 University of Manchester 23.4 1.5 0.7 - 25.6 18.3 Medical Research Council 18.9 0.1 - - 19.0 9.7 University of Bristol 15.7 1.2 0.5 - 17.4 4.9 Newcastle University 15.3 0.4 - - 15.7 4.2 University of Liverpool 15.2 0.1 - - 15.3 7.2 UK Biobank Ltd 12.4 - - - 12.4 20.6 Global Health Innovative Technology Fund, Japan - - 10.4 - 10.4 1.0 University of Sheffield 6.3 0.7 3.3 - 10.3 - Drexel University, United States of America - - - 9.4 9.4 - Ltd 9.0 - - - 9.0 16.1 University of Leeds 7.4 - 1.5 - 8.9 8.0 Monash University, Australia - - - 8.7 8.7 1.9 University of Birmingham 8.5 - - - 8.5 7.6 University of Cape Town, South Africa 8.3 - - - 8.3 0.4 Wellcome Trust/DBT India Alliance, India 7.0 - - - 7.0 5.6 Grants to other organisations 69.1 41.8 15.8 7.4 134.1 187.1 Total grants (excluding supplementations 635.8 56.8 91.8 150.5 934.9 712.9 and grants no longer required) Grant supplementations 14.3 0.4 1.7 0.7 17.1 18.7 Less: grants awarded in previous years no longer required (13.7) (0.7) (5.8) (0.1) (20.3) (17.5) 636.4 56.5 87.7 151.1 931.7 714.1

77 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

7. Grants awarded (continued)

Culture & Science Society Innovations Priority Areas 2017 2016 Group £m £m £m £m £m £m Grants awarded by the Group of which: United Kingdom 592.3 52.6 71.3 15.8 732.0 700.6 Directly funded international 44.1 3.9 16.4 135.3 199.7 13.5 Grants awarded by the Group 636.4 56.5 87.7 151.1 931.7 714.1

Culture & Science Society Innovations Priority Areas 2017 2016 Trust £m £m £m £m £m £m Grants awarded by the Group 636.4 56.5 87.7 151.1 931.7 714.1 Plus: grants awarded to subsidiary undertakings 106.4 - - - 106.4 103.1 Grants awarded by the Trust 742.8 56.5 87.7 151.1 1,038.1 817.2

Further details of grants awarded by the Trust are published on the Trust’s website, at the address given on the back cover. The following Governors during the year had appointments with organisations which were in receipt of grants: Professor Tobias Bonhoeffer – Max-Planck-Institut für Neurobiologie Mr William Burns – The Institute of Cancer Research Professor Dame Kay Davies – University of Oxford Professor Michael Ferguson – University of Dundee Professor Bryan Grenfell – Princeton University Professor Richard Hynes – Massachusetts Institute of Technology Professor Dame Anne Johnson – University College London

78 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

8. Grants awarded but not yet paid

Group Trust 2017 2016* 2017 2016* £m £m £m £m Liability at 1 October 1,963.4 1,754.3 1,967.7 1,754.3 Grants awarded during the year 931.7 714.1 1,038.1 817.2 Grants paid during the year (566.1) (502.6) (674.0) (601.4) Discounting of liability (65.3) (41.2) (65.3) (41.2) Foreign exchange revaluation of grant liability (21.7) 38.8 (21.7) 38.8 Liability as at 30 September 2,242.0 1,963.4 2,244.8 1,967.7 Of which: - falling due within one year (note 18) 571.5 483.8 574.3 488.1 - falling due after one year (note 18) 1,670.5 1,479.6 1,670.5 1,479.6 Liability as at 30 September 2,242.0 1,963.4 2,244.8 1,967.7

*The figures for 2016 have been restated to show the foreign exchange revaluation of the grant liability separately for both the Group and the Trust.

The total value of the grant liability discount for the year ended 30 September 2017 is £237.1 million applying an expected nominal rate of investment return of 5.6%. In the previous year ended 30 September 2016 an expected real rate of investment return of 4.5% was applied to give a total grant liability discount of £171.8 million.

79 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

9. Support costs

Support costs are those costs that, while necessary to deliver an activity, do not themselves produce or constitute the output of the charitable activity. Support costs are allocated to the activities shown in the table below. Funding administration costs are those costs that can be directly attributed to an activity. Operations comprise the costs of the following departments; Internal Communications, People and Places, Finance, Legal, and Digital and Technology. The remaining support costs have been apportioned using the allocation methods indicated and include governance costs. • Where costs have been allocated on the basis of headcount numbers, headcount numbers are the average number of full time employees within each activity. • Where costs have been allocated on the basis of expenditure, expenditure is determined as being either the total grant expenditure of the charitable activities; or where appropriate, based on a proportion of both grant and direct spend of the activity of Wellcome Trust.

Costs of generating Culture & Priority Total Total funds Science Society Innovations Areas 2017 2016 Group £m £m £m £m £m £m £m Allocation method Expenditure/ Funding administration - 15.1 2.4 4.8 2.6 24.9 26.7 Directly attributed

Support of scientific research - 16.9 - - - 16.9 14.3 Directly attributed

Headcount/ Operations 5.1 15.4 20.5 3.7 2.9 47.6 43.3 Expenditure

Other 0.1 1.9 0.2 0.3 0.4 2.9 3.5 Expenditure

Expenditure/ Governance Costs 0.4 1.5 0.2 0.2 0.3 2.6 2.5 Directly attributed 5.6 50.8 23.3 9.0 6.2 94.9 90.3

Costs of generating Culture & Priority Total Total funds Science Society Innovations Areas 2017 2016 Trust £m £m £m £m £m £m £m Allocation method Expenditure/ Funding administration - 15.1 2.4 4.8 2.6 24.9 26.7 Directly attributed Headcount/ Operations 5.1 15.4 20.5 3.7 2.9 47.6 43.2 Expenditure

Other 0.1 1.9 0.2 0.3 0.4 2.9 3.5 Expenditure

Expenditure/ Governance Costs 0.3 1.4 0.2 0.2 0.3 2.4 2.3 Directly attributed 5.5 33.8 23.3 9.0 6.2 77.8 75.7

80 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

10. Governance costs

Group Trust

2017 2016 2017 2016 £m £m £m £m Governors’ fees and expenses 0.9 0.9 0.9 0.9 Auditor’s remuneration - parent company and consolidation 0.5 0.3 0.5 0.3 - audits of subsidiary undertakings 0.2 0.4 - - Internal audit 0.6 0.5 0.6 0.5 Other costs 0.4 0.4 0.4 0.6 2.6 2.5 2.4 2.3

The internal audit services of £0.6 million (2016: £0.5 million) are those provided by the in-house internal audit team, together with the cost of specialist services provided by PricewaterhouseCoopers LLP. In addition to the Auditor’s remuneration above, in 2017 total fees of £0.4 million (2016: £0.9 million) excluding VAT were payable to the Group’s auditors Deloitte LLP or associated firms for non-audit services.

Group 2017 2016 Non-audit services split (excluding VAT) £m £m Tax - 0.4 Due diligence - 0.4 Leadership development programmes 0.4 0.1 0.4 0.9

The Leadership development programmes are for external leadership training.

81 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

11. Employee information

(a) Employee Benefits

Group Trust

2017 2016* 2017 2016* £m £m £m £m Remuneration and salary benefits 102.3 100.5 56.5 53.3 Social Security costs 9.9 9.8 5.4 5.5 Pension costs and other benefits 50.8 35.6 25.1 19.3 163.0 145.9 87.0 78.1

As Syncona LLP group was a subsidiary for only 2.5 months of the 2017 financial year, Syncona LLP group employee benefit costs are only reflected for this period of time. Details are provided in note 22. Pension costs and other benefits includes the current service cost of the pension fund which is disclosed in note 11(e)(i). *The 2016 remuneration and salary benefits amount has been restated in this disclosure to reflect the cost of the long-term incentive plans as included in the SOFA.

(b) Termination Payments

2017 2016 £m £m Redundancy 1.1 1.7 Other compensation 0.2 1.1 1.3 2.8

(c) Average numbers of employees who served during the year These numbers exclude employees of the investment subsidiaries held as part of the investment portfolio.

Average

2017 2016 Trust 684 691 Subsidiary undertakings 1,100 1,141 Total for the Group 1,784 1,832 Analysed by Investments 42 42 Non-charitable subsidiaries 25 127 Direct activities 1,162 1,091 Support 555 572 Total for the Group 1,784 1,832 Analysed by Investments 42 42 Direct activities 212 201 Support 430 448 Total for the Trust 684 691

As Syncona LLP group was a subsidiary for only 2.5 months of the 2017 financial year, Syncona LLP group employee numbers will be only be reflected for this period of time. Details are provided in note 22. 82 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

11. Employee information (continued)

(d) Benefits of employees The number of employees working on charitable activities of the Trust and its subsidiary undertakings whose benefits (salaries, benefits in kind, bonuses and termination payments, but excluding employer pension contributions and employer National Insurance Contributions), fell within the following bands is shown in the table below. The emoluments of the Director included in the table below totalled £445,220 (2016: £480,534). As noted in the Remuneration Report on page 42, information relating to the Investment team staff and the staff of the Syncona LLP group subsidiary businesses is not included in this table but are shown separately in note 5(b) and 5(c).

2017 2016 £60,000-£69,999 72 51 £70,000-£79,999 44 46 £80,000-£89,999 35 33 £90,000-£99,999 16 10 £100,000-£109,999 16 22 £110,000-£119,999 9 10 £120,000-£129,999 9 6 £130,000-£139,999 4 3 £140,000-£149,999 3 4 £150,000-£159,999 7 4 £160,000-£169,999 2 1 £170,000-£179,999 1 1 £180,000-£189,999 - 1 £190,000-£199,999 1 - £220,000-£229,999 - 1 £240,000-£249,999 1 2 £270,000-£279,999 1 1 £280,000-£289,999 - 1 £290,000-£299,999 1 - £300,000-£309,999 1 1 £310,000-£319,999 2 1 £320,000-£329,999 1 - £370,000-£379,999 1 - £380,000-£389,999 - 1 £440,000-£449,999 1 - £480,000-£489,999 - 1 £650,000-£659,999 - 1 228 202

83 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

11. Employee information (continued)

(d) Benefits of employees (continued) their underlying assets. The amount of the 30 September 2017; the valuation showed Further information in respect of deficit is subject to considerable variability the plan was in the region of 93% funded employees’ and Governors’ remuneration because it depends on a valuation of assets with a deficit of around £15.8 million. is included within the Remuneration at the year-end date and a range of actuarial In addition to deficit funding contributions Report on pages 40–42. assumptions impacting the liabilities. identified in triennial valuations, a rolling Tables 2 and 3 of the Remuneration FRS102 requires discount rates to be deficit recovery plan is in place, which Report on pages 41 and 42, together with based on corporate bond yields of an aims to remove the deficit in the annual the accompanying notes, form part of the appropriate duration, regardless of intermediate valuations over a period of audited Financial Statements. actual investment strategy and actual five years. Deficit funding contributions investment returns expected. This leads of £7.0 million were made into the (e) Retirement benefits to a difference between the accounting Genome Research Limited Pension Plan The Group sponsors two approved deficit and the funding position under the and £5.5 million into the Wellcome Trust funded defined benefit schemes, the triennial valuations. Pension Plan during the year. Wellcome Trust Pension Plan and the Genome Research Limited Pension Plan. A full actuarial valuation of the Wellcome The liability values within the UURBS are In addition certain Wellcome Trust senior Trust Pension Plan is currently being calculated at individual member level. employees are members of an Unfunded carried out at 31 December 2016. The The cost of accrual contributes to the Unapproved Retirement Benefit scheme most recent actuarial valuation as at charge to the Statement of Financial (“UURBs”). The Group also provides a 31 December 2013 showed a surplus Activities. As these benefits are unfunded, defined contribution Group Personal of £0.5 million. As a result no recovery there is no corresponding asset value. Pension plan into which both employee plan was required. An actuarial valuation The UURBS liability values represent the and employer contributions are paid. update was performed for the 30 present value of providing top-ups to The FRS102 “Retirement benefits” actuarial September 2017; the valuation showed the benefits accrued to date within the valuation of the Wellcome Trust and Genome the plan was in the region of 103% funded approved Wellcome Trust Pension Plan, Research Limited defined benefit pension with a surplus of around £7.7 million. without restrictions imposed by the approved Plan rules. The assumptions plans at 30 September 2017 showed a A full actuarial valuation of the Genome combined deficit of £247.9 million (2016: used to value the benefits are as per those Research Limited Pension Plan was carried stated within the FRS102 disclosures. £378.8 million). out as at 31 December 2015. This valuation This deficit represents the difference showed that the plan was 82% funded with The liabilities and the provision for other between an assessment of the liabilities of a deficit of £25 million. An actuarial retirement benefits have been calculated the pension funds and the current value of valuation update was performed for the using the following actuarial assumptions:

2017 2016 2015 % per annum % per annum % per annum Inflation 3.40% 3.40% 3.40% Salary increases 3.90% 4.15% 4.15% Rate of discount 2.75% 2.35% 3.85% Allowance for pension in payment increase of RPI or 5% p.a. if less 3.25% 3.30% 3.30% Allowance for revaluation of deferred pensions of RPI or 5% p.a. if less 3.40% 3.40% 3.40% 90% of 90% of 90% of Allowance for commutation of pension for cash at retirement Post A-Day Post A-Day Post A-Day Rate of increase of healthcare costs 6.00% 6.00% 6.00%

84 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

11. Employee information (continued)

(e) Retirement benefits (continued) The mortality assumptions adopted at 30 September 2017 imply the following life expectancies in years:

2017 2016 Male retiring at age 60 in 2017 27.7 27.8 Female retiring at age 60 in 2017 28.7 28.9 Male retiring at age 60 in 2037 28.9 29.2 Female retiring at age 60 in 2037 30.0 30.5 The mortality assumptions used in the valuation of the defined benefit pension liabilities of both schemes and the provision for other retirement benefits are based on the base mortality table of S2 PMA_L (male) and S2 PFA_L (female) together with an allowance for mortality improvement in line with CMI 2016 projections and a 1.00% per annum minimum long-term rate of improvement.

(i) Charge to the Statement of Financial Activities - Pension and other retirement benefits

Unfunded, unapproved Post-retirement Pension Fund scheme liabilities medical benefits Total 2017 2016 2017 2016 2017 2016 2017 2016 Trust £m £m £m £m £m £m £m £m Current service cost 19.0 13.0 0.7 0.5 - - 19.7 13.5 Expenses 0.3 - - - - - 0.3 - Interest on pension schemes’ liabilities 4.2 4.4 0.4 0.6 - - 4.6 5.0 Actuarial (gains)/losses (74.7) 59.2 (0.6) 4.1 (0.3) - (75.6) 63.3 Total charge to the Statement of Financial Activities (51.2) 76.6 0.5 5.2 (0.3) - (51.0) 81.8

Total 2017 2016 Group £m £m Current service cost 39.2 26.8 Expenses 0.5 - Interest on pension schemes’ liabilities 9.5 9.0 Actuarial (gains)/losses (154.3) 161.2 Total charge to the Statement of Financial Activities (105.1) 197.0

(ii) Present values of pension schemes’ liabilities, fair value of assets and deficit

Assets Liabilities Deficit 2017 2016 2017 2016 2017 2016 £m £m £m £m £m £m Wellcome Trust Pension Plan 260.9 208.8 (373.8) (384.6) (112.9) (175.8) Genome Research Limited Pension Plan 197.6 152.4 (332.6) (355.4) (135.0) (203.0) Total pension plans 458.5 361.2 (706.4) (740.0) (247.9) (378.8) Unfunded, unapproved scheme liabilities - - (17.7) (18.2) (17.7) (18.2) Post-retirement medical benefits - - (0.9) (1.3) (0.9) (1.3) Total other retirement benefits - - (18.6) (19.5) (18.6) (19.5) Total pension liabilities 458.5 361.2 (725.0) (759.5) (266.5) (398.3)

85 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

11. Employee information (continued)

(e) Retirement benefits (continued) (iii) Reconciliation of opening and closing balances of the present value of the pension plans’ liabilities as at 30 September

Group Trust

2017 2016 2017 2016 £m £m £m £m Plans’ liabilities at start of year 740.0 468.0 384.6 262.5 Current service cost 38.5 26.3 19.0 13.0 Expenses 0.5 - 0.3 - Interest cost 17.8 18.5 9.2 10.3 Contributions by plans’ participants 0.1 0.1 0.1 0.1 Actuarial (gains)/losses (84.3) 232.9 (35.0) 103.3 Benefits paid and death-in-service insurance premiums (6.2) (5.8) (4.4) (4.6) Plans’ liabilities at end of year 706.4 740.0 373.8 384.6

Analysis of the sensitivity to the principal assumptions of the value of the plans’ liabilities.

Assumption Change in assumption Impact on liabilities Discount rate Increase/decrease of 0.5% p.a. Decrease/increase by £98.2m (13.9%) Rate of inflation Increase/decrease of 0.5% p.a. Increase/decrease by £67.8m (9.6%) Rate of salary growth Increase/decrease of 0.5% p.a. Increase/decrease by £17.0m (2.4%) Probability of death in any year after retirement Increase/decrease of 10.0% p.a. Increase/decrease by £19.1m (2.7%) Long-term rate of mortality improvement Increase/decrease of 0.25% p.a. Increase/decrease by £9.2m (1.3%)

(iv) Reconciliation of opening and closing balances of the fair value of the plans’ assets as at 30 September

Group Trust 2017 2016 2017 2016 £m £m £m £m Fair value of plan assets at start of year 361.2 250.0 208.8 146.7 Expected return on plan assets 8.7 10.1 5.0 5.9 Actuarial gains 69.1 75.8 39.7 44.0 Contributions by the Group employers 25.6 31.0 11.7 16.7 Contributions by plan participants 0.1 0.1 0.1 0.1 Benefits paid and death-in-service insurance premiums (6.2) (5.8) (4.4) (4.6) Fair value of plan assets at end of year 458.5 361.2 260.9 208.8

These figures are for the pension schemes and exclude the other retirement benefits which are included in table 11(e)(i) above. None of the fair values of the assets shown above include any of the Group’s own financial instruments or any property occupied by, or other assets used by, the Group.

86 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

11. Employee information (continued)

(e) Retirement benefits (continued) (v) Amounts for the current and previous four years as at 30 September

Group 2017 2016 2015 2014 2013 Fair value of plans’ assets 458.5 361.2 250.0 248.8 216.1 Present value of plans’ liabilities (706.4) (740.0) (468.0) (418.5) (333.8) Deficit in plans (247.9) (378.8) (218.0) (169.7) (117.7) Experience adjustment on plans’ assets 69.1 75.8 (23.2) 2.8 16.6 Experience adjustment on plans’ liabilities (9.4) (6.8) 1.5 (2.6) (0.1) Effects of changes in the demographic and financial assumptions 93.7 (226.1) (13.8) (52.7) (34.5) underlying the present value of the plans’ liabilities

Trust 2017 2016 2015 2014 2013 Fair value of plan’s assets 260.9 208.8 146.7 149.2 133.8 Present value of plan’s liabilities (373.8) (384.6) (262.5) (238.4) (195.4) Deficit in plan (112.9) (175.8) (115.8) (89.2) (61.6) Experience adjustment on plan’s assets 39.7 44.0 (14.2) (0.2) 10.6 Experience adjustment on plan’s liabilities (10.0) 1.5 1.0 (0.7) (0.1) Effects of changes in the demographic and financial assumptions 45.0 (104.8) (6.9) (27.7) (16.5) underlying the present value of the plan’s liabilities

(vi) Estimate of contributions to be paid to scheme The best estimate of contributions to be paid by the employer to the Wellcome Trust scheme for the period beginning 1 October 2017 is £6.3 million (2016: £7.0 million), with an additional £4.6 million (2016: £6.4 million) of deficit funding. The best estimate of the contributions to be paid by the employer to the Genome Research Limited scheme for the period beginning 1 October 2017 is £13.3 million (2016: £9.5 million), with an additional £7.8 million (2016: £6.2 million) of deficit funding.

87 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

12. Remuneration of Governors

Information on Governors’ remuneration is included in the Remuneration Report on page 41. Details of the Governors who had appointments during the year with organisations which were in receipt of grants are disclosed in note 7. In addition, Professor Dame Kay Davies, who is a Governor, is a shareholder in Summit Corporation plc. The Trust has made no payments to Summit Corporation plc (2016: £0.1 million) in respect of programme related investments.

13. Taxation

2017 2016 Group £m £m (a) Current Tax UK Corporation Tax on profits for the year 13.8 12.8 Effect of Gift Aid distribution (0.4) (13.5) Reversal of prior year charge (0.6) (14.0) Research and Development refund - (3.6) Total current tax 12.8 (18.3)

(b) Deferred Tax Origination and reversal of timing differences 32.9 (17.4) Effect of change in UK tax rate (0.9) (1.2) Total deferred tax 32.0 (18.6) Taxation 44.8 (36.9)

88 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

13. Taxation (continued)

2017 2016 Group £m £m (c) Reconciliation of Tax Charge Profit/(loss) on ordinary activities before taxation on subsidiaries subject to taxation 189.1 (50.0) Profit/(loss) before tax multiplied by average rate of corporation tax of 19.5% (2016: 20%) 36.9 (10.0) Effects of: Prior year adjustments - (0.7) Income not subject to tax (1.0) - Expenses not deductible for tax purposes (8.6) 0.3 Temporary differences: Difference in timing of recognition of gains and income 12.7 (20.3) Difference in timing of recognition of gains and income (revaluation reserve movement) (1.4) 1.1 Difference in timing of recognition of taxable profit from underlying investments 0.5 18.0 Difference in timing of recognition of profit share from unit trust (1.8) - Unused tax losses carried forward 7.4 3.2 Utilisation of tax losses brought forward (0.2) 2.1 Unrealised loss/(gain) on fair value movement 1.3 (1.3) Depreciation greater/(less) than capital allowances - (0.1) Current year Gift Aid (0.4) (13.5) Gift Aid payment unable to be provided in prior year (0.6) (13.2) Gift Aid over/under provision - 0.3 R&D Tax Credit - (2.8) Taxation 44.8 (36.9)

The UK headline corporation tax rate for the period was 20%. Finance Act (No.2) 2015 enacted a fall in the main rate of UK corporation tax to 19% with effect from 1 April 2017 and to 18% with effect from 1 April 2020. Additionally in the Budget on 16 March 2016 a further rate reduction to 17% was proposed from 1 April 2020. For the purposes of reporting under FRS102 the investment subsidiaries must provide for deferred tax on temporary timing differences as we are not allowed to assume the deed will be effective when these reverse. The estimated cost of irrecoverable Value added tax suffered by the Group in the year was £12.4 million (2016: £16.6 million).

89 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

14. Tangible fixed assets

(a) Group

Long Finance Other plant, leasehold Finance leased equipment, Assets in Freehold land land and leased plant and fixtures and course of and buildings buildings buildings equipment fittings construction Total £m £m £m £m £m £m £m Cost as at 1 October 2016 444.9 1.5 20.7 64.0 191.5 2.1 724.7 Additions 0.4 - - - 7.7 7.4 15.5 Transfers 22.3 - (20.7) (64.0) 63.5 (1.1) - Disposals - - - - (10.9) - (10.9) Cost as at 30 September 2017 467.6 1.5 - - 251.8 8.4 729.3 Accumulated depreciation as at 1 October 2016 98.4 1.5 4.9 36.3 135.3 - 276.4 Charge for the year 8.3 - 0.5 3.1 12.2 - 24.1 Transfers 5.4 - (5.4) (39.4) 39.4 - - Disposals - - - - (6.2) - (6.2) Accumulated depreciation as at 112.1 1.5 - - 180.7 - 294.3 30 September 2017 Net Book Value as at 30 September 2017 355.5 - - - 71.1 8.4 435.0 Net Book Value as at 30 September 2016 346.5 - 15.8 27.7 56.2 2.1 448.2

(b) Trust

Long Finance Other plant, leasehold Finance leased equipment, Assets in Freehold land land and leased plant and fixtures and course of and buildings buildings buildings equipment fittings construction Total £m £m £m £m £m £m £m Cost as at 1 October 2016 212.8 1.5 20.8 64.0 56.6 0.8 356.5 Additions - - - - 1.1 0.8 1.9 Transfers 20.8 - (20.8) (64.0) 64.8 (0.8) - Disposals - - - - (0.9) - (0.9) Cost as at 30 September 2017 233.6 1.5 - - 121.6 0.8 357.5 Accumulated depreciation as at 1 October 2016 51.1 1.5 4.9 36.3 22.8 - 116.6 Charge for the year 3.6 - 0.5 3.1 3.5 - 10.7 Transfers 5.4 - (5.4) (39.4) 39.4 - - Disposals - - - - (0.7) - (0.7) Accumulated depreciation as at 60.1 1.5 - - 65.0 - 126.6 30 September 2017 Net Book Value as at 30 September 2017 173.5 - - - 56.6 0.8 230.9 Net Book Value as at 30 September 2016 161.6 - 15.9 27.7 33.8 0.8 239.8

90 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

14. Tangible fixed assets (continued)

Heritage assets Preservation and conservation Security and insurance In order to assure security and safety of No assets have been capitalised in the The Trust adheres to the principles for the the collections, various procedures are current financial year and the Trust did preservation and conservation of the library in place including: registration of users; not capitalise any assets in previous materials set by the National Preservation request of proof of identity prior to access; years. Office (NPO), International Federation of Library Associations and Institutions (IFLA), explanation of handling of materials; video the Museum Association Code of Ethics, surveillance; limits to amounts of closed Nature of the assets the Institute of Conservation (ICON) code of access material in reading room; checking The Trust has several collections of ethics and the British Standards Publicly heritage assets comprising substantial of returned material and security tagging; Available Specification (PAS) 198 managing collections of books, archives, art works, material risk assessments for fire, flood environmental conditions for cultural artefacts of scientific and historical and theft; compliance with appropriate collections. The Trust continually develops interest and other museum pieces held British Standards; fire precaution, fire repository and management systems for in support of one of the Trust’s main detection and extinguishing systems; flood digital materials and monitors the digital objectives of advancing and promoting warning and egress of water systems; environment for risk factors such as knowledge and education. The majority intruder alarms; locking up and opening software or hardware obsolescence and the of the collection is held at the premises procedures; monitoring of storage areas; impact of new technologies. The Trust is in Euston Road but there are also off-site maintenance checklist; and procedures for committed to providing high quality storage storage facilities situated in Cheshire with evacuation of premises. As part of for all its collections and aims to comply state-of-the-art technology and security. the Trust’s Business Continuity Plan, with the appropriate British Standards. the Library has a disaster and salvage plan Policy for acquisition Disposal in place. The Library also has a contract Materials selected for acquisition must The vast majority of materials in the library with Harwell which provides support for be representative of health-connecting collections are retained in perpetuity. the majority of the disaster and salvage science, medicine, life and art; must be However, materials will normally be issues that may arise. The Library of demonstrable research value; must removed from the collections if they are materials are insured against damage or normally be in a reasonable state of duplicated (unless they are of particular loss due to fire, flood, or terrorist activity at completeness and in good condition; monetary value or significant provenance), named locations, unnamed locations and must not pose a health and safety risk or superseded, no longer relevant, have while in transit. The collections are not serious conservation threat to other items deteriorated beyond repair and have no insured for full replacement value as it is in the collection; and should not require historic value or they are considered to be not possible to quantify this and the nature significant additional resources for a health risk. Certain items are sometimes of the items held means that they are often conservation and/or storage. donated to peer institutions. irreplaceable.

91 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

15. Intangible fixed assets

Total Intellectual property Group £m Cost as at 1 October 2016 17.3 Additions - Disposals (17.3) Cost as at 30 September 2017 -

Accumulated amortisation as at 1 October 2016 6.8 Charge for the year - Disposals (6.8) Accumulated amortisation as at 30 September 2017 -

Net Book Value as at 30 September 2017 - Net Book Value as at 30 September 2016 10.5

The intangible assets were disposed during the year as part of the Syncona LLP group disposal (refer to note 22).

92 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

16. Investments

(a) Quoted investments, Unquoted investments and Investment properties

Fair value Sales Total gains/ Fair value 1 October 2016 Purchases proceeds (losses) 30 September 2017 Group £m £m £m £m £m Total quoted investments 11,347.6 3,154.8 (3,275.8) 1,921.2 13,147.8 Total unquoted investments 9,339.9 1,071.1 (1,512.5) 712.9 9,611.4 Total investment properties 1,408.0 6.8 (22.8) (1.5) 1,390.5 Total 22,095.5 4,232.7 (4,811.1) 2,632.6 24,149.7

Fair value Sales Total gains/ Fair value 1 October 2016 Purchases proceeds (losses) 30 September 2017 Trust £m £m £m £m £m Total quoted investments 10,726.1 2,434.0 (2,577.2) 1,922.8 12,505.7 Total unquoted investments 8,229.0 977.0 (1,335.1) 680.9 8,551.8 Total investment properties 1,241.1 6.7 (21.5) 3.0 1,229.3 Total 20,196.2 3,417.7 (3,933.8) 2,606.7 22,286.8

The significance of and the exposure associated with the investment assets are discussed in the Review of Investment Activities section of the Trustee’s Report. During the year, the maximum aggregate fair value of quoted investment securities on loan was £829.8 million (2016: £244.4 million) and the Group held £856.0 million (2016: £283.5 million) as collateral in respect of these securities. The income receivable due to securities lending activities is disclosed in note 3. No loaned securities were recalled but not obtained during the year and therefore no collateral was retained. The unquoted investment balance shown above includes investments in associates and joint ventures held at fair value of £571.5 million (2016: £599.3 million). As their value to the Group is through fair value rather than as a medium through which the Group carries out business, the Trustee considers this the most appropriate accounting policy. This is a departure from the SORP, which requires that all such investments are accounted for using the equity method of accounting. In a further departure from the SORP, the impact of accounting for such investments on an equity accounting basis has not been quantified. Due to the number of investments made, often over a number of years, the cost to our associates and joint ventures of providing the required additional historic reporting is considered to be disproportionate to the value that would be added by the disclosure. During the year the Group had the following transactions with associates, joint ventures or subsidiaries held as part of the investment portfolio and not consolidated, which are related party entities: • purchases in the form of equity and debt of £50.3 million (2016: £8.8 million); and • received sales proceeds of £144.8 million (2016: £182.6 million). Investment properties in the Group and the Trust have been valued at market value generally in accordance with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors. The valuations were carried out by Gerald Eve, Jones Lang Lasalle, Brown & Co and CB Richard Ellis.

93 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

16. Investments (continued) b) Derivative financial instruments

Group Trust

2017 2016 2017 2016 £m £m £m £m Derivative financial instrument asset positions 178.6 148.0 178.6 148.0

Derivative financial instrument liabilities for the Group and Trust are included within creditors, disclosed in note 18. The Group’s use of derivative financial instruments comprises:

Forward currency contracts Forward currency contracts are used to hedge investment assets denominated in foreign currency into Pounds Sterling and as part of the investment strategy to have a globally diversified currency exposure.

Financial futures, options and warrants The use of futures, options and warrants constitutes part of the Trust’s portfolio management including: a substitution for investing in physical assets, a part of the Trust’s long-term investment return strategy entered into with the expectation of realising gains, and adjusting asset exposures within the parameters set in the Trust’s investment policy.

(c) Investment cash and certificates of deposit and other investment assets

Group Trust 2017 2016 2017 2016 £m £m £m £m Investment cash and certificates of deposit 946.7 916.9 946.6 904.6 Cash collateral held 347.8 287.7 347.8 253.9 Accrued income from investments 22.1 18.2 18.9 15.6 Income receivable 13.7 15.6 11.3 14.1 Proceeds receivable on sale of investments 16.2 108.4 16.2 103.0 Other investment debtors 45.6 64.9 45.0 55.2 Other investments assets 445.4 494.8 439.2 441.8

94 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

16. Investments (continued)

(d) Mixed motive investments

Fair value Fair value balance as at balance as at 1 October 2016 Purchases Disposals Total gain 30 September 2017 Group £m £m £m £m £m Investment in Syncona Limited - 319.3 - 137.9 457.2

As detailed in note 22, in December 2016, the group acquired a 37% interest in BACIT Limited which was subsequently named Syncona Limited. This investment is considered to be an associate as defined under the Basis of Consolidation on page 63. Syncona Limited’s business is made up of an investment portfolio and a life science investment company. It takes a long term approach to investments and the structure enables it to access a deep pool of capital when the right life science opportunities arise, while generating attractive returns for shareholders on an ongoing basis. Over time, it intends to become primarily a life science investment company. The investment in Syncona Limited will both forward Wellcome’s charitable objectives and provide a financial return. Internal analysis demonstrated that over the long-term this return would be less than Wellcome’s expectation for typical venture capital investments held within the main investment portfolio. This investment is held at fair value. This is in accordance with FRS 102 9.9B(a), but is a departure from the SORP which requires that all such investments are accounted for using the equity method of accounting. The treatment adopted is considered to be appropriate as this is how the investment is measured by management for decision making, reporting and performance assessment to ensure that the overall yield on Syncona is sufficient and Syncona’s activities continue to meet Wellcome’s charitable objectives. This is in line with the accounting policy for associates detailed in note 1. In a further departure from the SORP, the impact of accounting for this investment on an equity accounting basis has not been quantified, to be consistent with the approach for unquoted investments detailed in note 16(a).

95 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

16. Investments (continued)

(e) Programme related investments

Book value Net Book value 30 1 October 2016 Purchases Disposals write-downs September 2017 Group £m £m £m £m £m Loans – other - 10.9 - (10.0) 0.9 Loans - 10.9 - (10.0) 0.9 Equities – The Francis Crick Institute - 0.1 - (0.1) - Equities – Diamond Light Source - 2.7 - (2.7) - Equities – MSD-Wellcome Trust Hilleman Laboratories - 3.6 - (3.6) - Equities – other 5.9 0.9 (2.6) 1.3 5.5 Equities 5.9 7.3 (2.6) (5.1) 5.5 Revenue share – other - 7.8 - (7.8) - Revenue share - 7.8 - (7.8) - Total 5.9 26.0 (2.6) (22.9) 6.4

The Francis Crick Institute Limited Equities include equity interest for the Trust’s share of the funding of this project for programme management costs. Under the terms of the legal agreement, the Trust and the Original Founders will lease the land and building for 55 years to The Francis Crick Institute Limited at nil rental, and upon expiry of the lease the Trust and the other Original Founders would expect to agree to renew this lease on the same terms. On this basis, the Trust does not expect to receive any financial return from this programme related investment and it has been fully written down and included within Science direct expenditure.

Diamond Light Source Limited Equities also include a 14% equity interest in Diamond Light Source Limited, a company established to construct and operate a synchrotron in Oxfordshire. Under the shareholding agreement, there is no intrinsic value in the equity and the cost has therefore been fully written down and included within Science direct expenditure.

MSD-Wellcome Trust Hilleman Laboratories Equities include a 50% equity interest in SCS Pharma Research and Development Private Limited (known as MSD-Wellcome Trust Hilleman Laboratories), a company established in India to develop affordable vaccines to prevent diseases that commonly affect low and middle-income countries. Under the shareholding agreement, there is no intrinsic value in the equity and the cost has therefore been fully written down and reflected within Innovations direct expenditure.

Other As part of its Innovations activities, the Trust has provided funding to 77 (2016: 72) early-stage companies to carry out biomedical research projects with potential to deliver health benefits. Together, these programme related investments form a portfolio managed separately from the Trust’s other investments. These investments are held primarily to further the charitable aims of the Trust rather than to provide a financial return. Consequently they are, as permitted by the SORP, held at cost less provision for impairment. The net write-down of £16.5 million (2016: £11.7 million) is to reflect the Trust’s policy of writing off the cost of the investment in these early-stage companies as it is not anticipated that this cost will be recovered. At each year end, a review of the programme related investment portfolio is performed, whereby the impairment on individual assets with known value is reversed and included within charitable activities. During 2017 the impairment reversed was £3.1 million (2016: £3.1 million). The net write back relates to three investments that are no longer considered to be impaired. Any income received or gains realised are included in other income and amounted to £2.3 million (2016: £2.7 million).

96 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

16. Investments (continued)

(f) Realised and unrealised gains/(losses) on investments

Group Trust 2017 2016 2017 2016 Note £m £m £m £m Quoted investments 16(a) 1,921.2 2,414.7 1,922.8 2,257.9 Unquoted investments 16(a) 712.9 1,376.2 680.9 1,366.8 Investment properties 16(a) (1.5) 11.5 3.0 5.9 Derivative financial instruments Currency overlay (17.5) (122.0) (17.5) (122.0) Other derivative financial instruments 196.0 (229.4) 196.1 (229.2) Shares in subsidiary undertakings - - 167.7 66.0 Foreign exchange (losses)/gains on monetary assets (7.3) 69.2 (17.9) 70.4 Foreign exchange (losses)/gains on bond liability (6.3) (50.8) (6.3) (50.8) 2,797.5 3,469.4 2,928.8 3,365.0

97 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

16. Investments (continued)

(g) Reconciliation to Trustee’s Report The presentation of investment balances in notes 16 and 18 is in accordance with the statutory asset and liability classifications. However, the investment portfolio is reported by investment strategy for management purposes and for the Trustee’s Report. The distinct classes of assets used and reported on within the Trustee’s Report are: public equity; private equity; hedge funds; property and infrastructure; and cash. This note reconciles the net investment asset fair value at the balance sheet date as presented within the Trustee’s Report to the presentation within the Financial Statements. The market value of each asset class presented in the Trustee’s Report is equal to the net investment assets and liabilities, held within portfolios with that applicable investment strategy. The assets and liabilities presented in the Consolidated Balance Sheet and notes reconcile to Figure 6 in the Trustee’s Report as follows:

2017 2016 Note £m £m Quoted investments 16(a) 13,147.8 11,347.6 Unquoted investments 16(a) 9,611.4 9,339.9 Investment property 16(a) 1,390.5 1,408.0 Derivative financial instrument asset positions 16(b) 178.6 148.0 Investment cash and certificates of deposit 16(c) 946.7 916.9 Other investment assets 16(c) 445.4 494.8 Derivative financial instrument liabilities 18 (100.9) (199.3) Amount payable on acquisition of investments 18 (5.0) (21.0) Cash collateral creditor 18 (347.8) (287.7) Deferred income from investments 18 (4.6) (3.1) Other investment liabilities 18 (29.1) (36.1) Bond liabilities at amortised cost falling due within one year 18 (18.3) (18.2) Bond liabilities at amortised cost falling due between one and five years 18 (273.3) (272.9) Bond liabilities at amortised cost falling due after five years 18 (1,284.1) (1,277.0) Adjusted for: Restatement of bond liabilities to fair value (464.8) (679.5) Syncona assets not in investment asset allocation - (6.5) Other investments not in asset allocation (4.5) (0.9) Total assets net of Bond liabilities per Figure 6 23,188.0 20,853.0

98 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

16. Investments (continued)

(g) Reconciliation to Trustee’s Report (continued)

2017 2016 Note £m £m Total assets net of Bond liabilities per figure 6 23,188.0 20,853.0 Add back investment liabilities: Derivative financial instrument liabilities 18 100.9 199.3 Amount payable on acquisition of investments 18 5.0 21.0 Cash collateral creditor 18 347.8 287.7 Deferred income from investments 18 4.6 3.1 Other investment liabilities 18 29.1 36.1 Bond liabilities at amortised cost falling due within one year 18 18.3 18.2 Bond liabilities at amortised cost falling due between one and five years 18 273.3 272.9 Bond liabilities at amortised cost falling due after five years 18 1,284.1 1,277.0 Mixed motive investments 16(d) 457.2 - Programme related investments 16(e) 6.4 5.9 Adjusted for: Restatement of bond liabilities to fair value 464.8 679.5 Syncona assets not in investment asset allocation - 6.5 Other investments not in asset allocation 4.5 0.9 Investment assets as presented in the Consolidated Balance Sheet 26,184.0 23,661.1

17. Debtors

Group Trust 2017 2016 2017 2016 £m £m £m £m Amounts owed by subsidiary undertakings - - 6.4 6.7 Other debtors 28.1 14.3 4.1 8.4 Prepayments 8.6 8.0 3.1 3.9 36.7 22.3 13.6 19.0

99 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

18. Creditors

Group Trust 2017 2016 2017 2016 Note £m £m £m £m Falling due within one year Amounts owed to subsidiary undertakings - - 975.5 865.6 Grant liabilities 8 571.5 483.8 574.3 488.1 Bond liabilities 18.3 18.2 9.0 9.0 Amount payable on acquisition of investments 5.0 21.0 5.0 16.2 Cash collateral creditor 347.8 287.7 347.8 253.9 Deferred income from investments 4.6 3.1 4.6 3.0 Derivative financial instrument liabilities 100.9 199.3 100.9 199.3 Other investment liabilities 29.1 36.1 19.0 16.5 Trade creditors 15.5 10.2 7.2 3.2 Other creditors 41.4 36.5 39.0 34.3 Accruals and deferred income 34.4 21.7 10.0 10.2 Corporation tax 13.3 0.7 - - Total falling due within one year 1,181.8 1,118.3 2,092.3 1,899.3 Falling due between one and five years Grant liabilities 8 1,451.4 1,258.0 1,451.4 1,258.0 Other creditors 2.8 0.6 - - Lease premium creditor 1.9 1.8 - - Bond liabilities 273.3 272.9 - - 1,729.4 1,533.3 1,451.4 1,258.0 Falling due after five years Grant liabilities 8 219.1 221.6 219.1 221.6 Lease premium creditor 15.3 15.7 - - Bond liabilities 1,284.1 1,277.0 742.8 735.9 1,518.5 1,514.3 961.9 957.5 Total falling due after one year 3,247.9 3,047.6 2,413.3 2,215.5

During the year, Wellcome Trust Investments 1 Unlimited novated a loan from Wellcome Trust Finance plc to the Trust at fair value of £190.6 million in exchange for settlement of an equal amount owed to Wellcome Trust Investments 1 Unlimited. The principal value of this loan payable to Wellcome Trust Finance plc is £150.0 million at a coupon interest rate of 4.125% per annum payable in 2036 and the fair value adjustment of £40.6 million will be amortised over the life of the loan offsetting the higher coupon interest rate. Grant commitments are split pro rata according to the terms of the grant at the point of award. All liabilities are unsecured.

100 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

19. Provisions for liabilities and charges

Deferred Employment Other tax related provisions provisions Total Group £m £m £m £m As at 1 October 2016 34.2 41.3 4.5 80.0 Charge for the year 32.0 11.4 (0.2) 43.2 Utilised in year - (3.8) - (3.8) Foreign exchange revaluations (0.4) - - (0.4) As at 30 September 2017 65.8 48.9 4.3 119.0

Employment Other related provisions provisions Total Trust £m £m £m As at 1 October 2016 41.3 4.5 45.8 Charge for the year 11.4 (0.2) 11.2 Utilised in year (3.8) - (3.8) As at 30 September 2017 48.9 4.3 53.3

The employment-related provisions relate primarily to long-term incentive plans for certain employees in the Investment Division (see note 5(a)).

101 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

20. Commitments and contingent liabilities

(a) Investments (c) Grant funding activities partnership with the Department for The Trust has entered into commitments During the current and prior years, the Business, Energy & Industrial Strategy to invest in private equity and property Innovations division has made Seeding (formerly BIS), to support science centres funds. At the balance sheet date, Drug Discovery grants of £173.0 million, across the UK. Subject to review and outstanding commitments amounted to of which £160.6 million has been approval of appropriate applications, £2,383.9 million (2016: £2,078.7 million). included in grant expenditure in current the Trust will contribute up to a further The Trust models its expected cash and prior financial years. The remaining £5.8 million over the next two years. flows based on the year of the original £12.4 million is contingent upon specific During the prior year, the Trust incurred commitment and historic trends. The funding-related milestones being met and £44.1 million in expenditure relating to Trust expects to invest £610.7 million has therefore not been included within three years of Institutional Strategic (26%) of its outstanding commitments grant liabilities. Support Funding. Subject to review in one year, £1,053.7 million (44%) To date the Trust has incurred and approval of progress, the Trust may in between one and five years and £48.8 million for expenditure relating contribute up to £29.4 million for years £719.5 million (30%) after five years. to Wellcome Trust-DBT India Alliance. 4 and 5 of these awards in future years. Subject to Trustee approval, the Trust During the year, the Trust entered into (b) Programme related will contribute up to £31.2 million over a partnership with the US Government’s investments the next six years. Biomedical Advanced Research and At 30 September 2017, the Trust had no During the year, Wellcome incurred Development Authority (BARDA) outstanding commitment to The Francis £4.7 million in expenditure relating to and Boston University to create Crick Institute Limited (2016: £0.1 million). a partnership between Wellcome, the Combating Antibiotic Resistant No further programme related investment the UK Medical Research Council, the UK Bacteria Biopharmaceutical Accelerator costs are expected. Department for International Development (CARB-X) to support preclinical product Programme related convertible loans and and the UK Department of Health to fund development of new antibiotics. equity funding have been made over a clinical trials in low and middle-income £30 million was committed in 16/17 series of years, of which £19.4 million countries. Subject to review and approval and subject to review and approval of (2016: £33.0 million) remains yet to be of appropriate applications, Wellcome will appropriate applications; the Trust will drawn down and is contingent upon contribute up to a further £20.3 million contribute up to £87.1 million over the specific milestones being achieved. over the next four years. next four years.

The Trust has committed to fund 14% Wellcome has incurred £5.3 million in (d) Capital commitments of the third construction phase of expenditure relating to a joint initiative As at 30 September 2017 Genome the Diamond Light Source Limited between Wellcome, the UK Department Research Limited had commitments synchrotron project. The outstanding for International Development, the contracted and not provided for of commitment as at 30 September 2017 Economic and Social Research Council £3.8 million relating to the construction was £0.6 million (2016: £1.7 million). and the UK Medical Research Council of the Genome Campus datacentre to fund health systems research in low During the year, the Trust incurred (2016: £nil). and middle-income countries. Subject £3.8 million (2016: £1.6 million) in to review and approval of appropriate expenditure relating to an entity in applications, Wellcome will contribute up India, MSD-Wellcome Trust Hilleman to £9.5 million over the next four years. Laboratories. The outstanding commitment as at 30 September 2017 During the year the Trust has incurred was £26.1 million (2016: £29.9 million). £4.2 million in expenditure relating to a

102 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

21. Movement in Charity Funds

Balance as at Net investment Balance as at 1 October 2016 Income Expenditure gains 30 September 2017 Group £m £m £m £m £m Restricted Funds 8.3 33.5 (20.6) - 21.2 Unrestricted Funds 19,553.3 391.8 (1,149.5) 3,060.2 21,855.8 Total Charity Funds 19,561.6 425.3 (1,170.1) 3,060.2 21,877.0

Restricted funds are subject to the conditions of the individual grants awarded by the donor. Expenditure includes the tax credit, the movement on the pension schemes’ liabilities and the minority interest. All restricted funds arise in Genome Research Limited. In 2016 restricted income was £22.8 million and expenditure was £22.4 million.

22. Disposal of Subsidiary

Sale of subsidiary undertaking On 19 December 2016, the Group sold its 100% interest in the Syncona Partners LLP to BACIT Limited receiving 134,883,720 shares in BACIT Limited as consideration. At the same point the Group purchased an additional 108,577,965 shares in BACIT Limited at market value. Following the transaction, the Group holds a 37% share in BACIT Limited. This investment is included as a Mixed Motive Investment at fair value. The loss of Syncona Partners LLP and its subsidiaries attributable to the Group up to 19 December 2016 the date of disposal was £11.5 million and for its last financial year was £22.0 million. On 19 December 2016 BACIT Limited was renamed Syncona Limited. Net assets disposed of and the related sales proceeds were as follows:

£m Fixed assets 14.2 Investments 5.2 Other assets 16.9 Finance cash 40.5 Current Liabilities (11.3) Net assets 65.5

Non-controlling interest (13.4) 52.1

Gain on sale 124.8 Sale proceeds 176.9

Satisfied by: Issue of shares in BACIT Limited 176.9

No adjustment has been made to the fair value of the shares invested in BACIT Limited for a two year lock up period during which time the Group has, in a separate agreement, agreed to a restriction over the disposal of the shares. This restriction was not inherent in the class of share issued and is not reflected in the share price.

103 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

22. Disposal of Subsidiary (continued)

Amounts relating to the Syncona LLP group operations included in the Statement of Financial Activities:

2017 2016 £m £m Income from investments Other income 1.0 1.7 Total Income 1.0 1.7

Expenditure on Raising Funds Management fees and other investment costs (13.2) (49.0) Total Expenditure (13.2) (49.0) Net realised and unrealised (losses)/gains on investments (0.1) 1.1 Net income before taxation (12.3) (46.2) Taxation 0.2 5.7 Net income after taxation (12.1) (40.5) Total movement in funds (12.1) (40.5)

Non-controlling interests 0.6 18.5 Net movement in fund after minority interests (11.5) (22.0)

104 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

23. Group undertakings a) Summary of activities of significant subsidiary undertakings

Company % Holding Registered Number Country of incorporation Legal relationship Genome Research 100% 2742969 England The Wellcome Trust Limited Limited and Wellcome Trust Nominees Limited are equal members

Gower Place • Ordinary shares – 100% 08594660 England The Wellcome Trust Limited is Investments Limited • Class A preference shares – 0% the shareholder • Class B preference shares – 100% North London • Ordinary shares – 100% 08226374 England The Wellcome Trust Limited is Ventures Limited • Class A preference shares – 0% the shareholder • Class B preference shares – 100% Wellcome Trust 100% 5857955 England The Wellcome Trust Limited is Finance plc the sole shareholder

Wellcome Trust 100% 6576220 England The Wellcome Trust Limited is Investments 2 the sole shareholder Unlimited

Wellcome Trust 100% LP011456 England The Wellcome Trust Limited Investment Limited is the limited partner and Partnership Wellcome Trust GP Limited is the general partner

These significant subsidiaries are considered to be: • non-charitable investment subsidiary undertakings formed to hold investments and freehold property on behalf of the Trust where the net asset value is in excess of £200 million – refer to note 23(b)(i); • a non-charitable mixed motive investment holding subsidiary undertaking – refer to note 23(b)(ii); • a non-charitable financing subsidiary undertaking formed to issue listed debt to finance Group activities – refer to note 23(b)(iii); and • charitable subsidiary undertakings formed to pursue charitable objects closely allied to those of the Trust – refer to note 23(b)(iv).

The table below details the subsidiaries that are held as part of the investment portfolio. They are not included in the consolidation and therefore do not appear in the analysis in note 23(b).

Company % Holding Registered Number Country of incorporation Legal relationship The Wellcome Trust Limited is Farmcare Trading 100% (indirect through Gower 09152445 England the indirect shareholder through Limited Place Investments Limited) Gower Place Investments Limited The Wellcome Trust Limited is Premier Marinas 100% (indirect through Gower 05524490 England the indirect shareholder through Holdings Limited Place Investments Limited) Gower Place Investments Limited

105 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

23. Group undertakings (continued) a) Summary of activities of significant subsidiary undertakings (continued) The Trust has taken advantage of an exemption from audit available under 479A to 479C of the Companies Act 2006 for the following subsidiaries which are all registered in England: Wellcome Trust Investments 1 Unlimited Wellcome Trust Investments 2 Unlimited Wellcome Trust Investments 3 Unlimited The Wellcome Trust Limited has provided the appropriate guarantee for all liabilities of these entities. The Trust has taken advantage of an exemption from audit available under Regulation 7 of the Partnership (Accounts) Regulations 2008 for the following partnerships: Wellcome Trust Investment Limited Partnership – registered in England. Wellcome Trust Scottish Limited Partnership – registered in Scotland.

(b) Summary financial information The expenditure figures below include the impact of gift aid distributions and tax. (i) Non-charitable investment subsidiary undertakings

Wellcome Trust Investment Gower Place Investments Wellcome Trust Investments Limited Partnership Limited 2 Unlimited

2017 2016 2017 2016 2017 2016 £m £m £m £m £m £m Turnover 17.9 12.1 - 0.1 0.8 - Expenditure (12.1) (13.0) (3.4) (0.1) 1.5 32.2 Gains/(losses) on investments 5.6 158.6 (23.0) 18.6 (12.8) 22.5 11.4 157.7 (26.4) 18.6 (10.5) 54.7 Investment assets 647.4 621.7 569.3 588.3 290.2 243.6 Current assets 61.6 114.9 0.5 7.9 40.3 142.9

Total assets 709.0 736.6 569.8 596.2 330.5 386.5 Liabilities (247.6) (286.6) (6.8) (6.5) (19.5) (21.6) Net assets 461.4 450.0 563.0 589.7 311.0 364.9

The functional currency of Wellcome Trust Investments 2 Unlimited is the US Dollar because the majority of the Company’s transactions are denominated in US Dollars.

106 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

23. Group undertakings (continued)

(b) Summary financial information (continued)

(ii) Non-charitable mixed motive investment holding subsidiary undertaking

North London Ventures Limited

2017 2016 £m £m Turnover 5.6 - Expenditure (40.3) - Gains/(losses) on investments 207.2 - 172.5 - Investment assets 457.2 96.6 Current assets 80.5 -

Total assets 537.7 96.6 Liabilities (40.4) (0.1) Net assets 497.3 96.5

(iii) Non-charitable investment financing subsidiary undertaking

Wellcome Trust Finance plc

2017 2016 £m £m Turnover 42.6 42.8 Expenditure (42.6) (42.8) Total Profit - - Assets 961.5 963.7 Liabilities (824.0) (826.2) Net assets 137.5 137.5

(iv) Charitable subsidiary undertaking

Genome Research Limited

2017 2016 £m £m Income 137.9 125.1 Expenditure (143.6) (130.4) Actuarial gains/(losses) on defined benefit pension scheme 78.7 (97.8) Net movements in funds 73.0 (103.1) Total assets 213.8 203.6 Liabilities (48.6) (43.4) Defined benefit pension scheme deficit (135.0) (203.0) Net assets 30.2 (42.8)

All restricted funds arise in Genome Research Limited.

107 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

24. Consolidated cash flow

(a) Investment income received

2017 2016 £m £m Dividends and interest 348.0 308.3 Rental income 37.4 44.2 Other income 0.9 1.6 (Increase)/decrease in income receivable from investments 2.3 (3.2) Increase in accrued income from investments (3.9) (0.4) Decrease/(increase) in deferred income from investments 1.5 (1.1) Investment income received 386.2 349.4

(b) Servicing of finance

2017 2016 £m £m Interest payable (59.7) (59.3) Foreign exchange losses on revaluation of interest bearing liabilities (6.3) (50.8) Increase in interest bearing liabilities 7.6 52.1 Cash outflow for servicing of finance (58.4) (58.0)

(c) Reconciliation of investment sales and purchases

2017 2016 £m £m Proceeds on sale of quoted investments 3,275.8 3,248.4 Proceeds on sale of unquoted investments 1,512.5 2,114.5 Proceeds on sale of investment property 22.8 71.5 Decrease/(increase) in proceeds receivable on sale of investments 92.2 (76.6) Proceeds on sale of Programme Related Investments 3.1 5.0 Proceeds from sales of investments 4,906.4 5,362.8 Purchases of quoted investments 3,154.8 2,782.2 Purchases of unquoted investments 1,071.1 1,631.7 Purchases of investment property 6.8 4.2 Decrease in amounts payable on acquisition of investments 15.9 44.4 Purchase of Mixed Motive Investments 142.5 - Purchase of Programme Related Investments 26.0 26.2 Purchases of investments 4,417.1 4,488.7 Gain/(loss) on derivative financial instruments 178.5 (351.2) (Increase)/decrease in derivative financial asset positions (30.6) 11.8 (Decrease)/increase in derivative financial liabilities (98.4) 8.7 Net cash inflow/(outflow) upon settlement of derivative financial instruments 49.5 (330.7)

108 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

25. Major non-cash transactions

The disposal of the subsidiary Syncona LLP group and receipt of BACIT shares as consideration (refer to note 22) is the only major non-cash transaction in the year. There were no major non-cash transactions during 2016.

26. Financial risk management

In the ordinary course of its activities, the Group actively manages a variety of financial risks including credit risk, liquidity risk and market risk. The Group identifies measures and monitors risk through various control mechanisms as detailed in the following sections, including maximum approved counterparty exposure and diversifying exposures and activities across a variety of instruments, markets and counterparties.

(a) Credit risk Credit risk is the risk that the Group would incur a financial loss if a counterparty failed to discharge its obligations to the Group.

Credit risk exposure The Group is subject to credit risk from its financial assets held by appropriate counterparties and the risk is particularly concentrated on its investment cash balances and certificates of deposit due to the significant value of these balances. The following table details the Group’s maximum exposure to credit risk as at 30 September:

2017 2016 £m £m Derivative financial instruments assets positions 178.6 148.0 Investment cash balances and certificates of deposit 946.7 916.9 Cash collateral held 347.8 287.7 Accrued income from investments 22.1 18.2 Proceeds receivable on sale of investments 16.2 108.4 Other investment debtor balances 45.6 64.9 Programme related investment loans 0.9 - Other debtors 28.1 14.3 Term deposits and cash 15.7 56.1 1,601.7 1,614.5

None of the Group’s financial assets subject to credit risk (other than the Programme related investments which are discussed in note 16(e)) are past their due date or were impaired during the year.

109 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

26. Financial risk management (continued)

Risk management policies and procedures The objective of managing credit risk is to minimise counterparty default on the Group’s financial assets causing financial loss to the Group. The Group aims to mitigate its counterparty credit risk exposure by monitoring the size of its credit exposure to and the creditworthiness of counterparties, including setting appropriate exposure limits and maturities. Counterparties are selected based on their financial ratings, regulatory environments and specific circumstances. The following details the risk management policies applied to the financial assets exposed to credit risk: • for interest-bearing securities the credit rating of the issuer is taken into account to minimise the risk to the Group of default. Investments are made across a variety of issuers to reduce concentrations of credit risk; • transactions involving derivative financial instruments are entered into only with reputable banks, the credit ratings of which are taken into account to minimise credit risk. Derivative financial instrument asset positions exposed to credit risk comprise the Group’s forward currency contracts; • direct cash management mandate is limited to the use of deposits with selected banks (the credit ratings of which are taken into account to minimise credit risk), the purchase of short-dated UK Government securities and the controlled use of AAA rated money market funds; and • sale and purchases of investments are carried out with a small number of brokers, whose credit quality forms part of the initial and on-going reviews by the investment managers. At the balance sheet date, in addition to the securities on loan discussed in note 16(a), forward currency contract assets which are secured by cash collateral are discussed in note 16(b). There were no other credit enhancements.

(b) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulties raising cash to meet its obligations when they fall due.

Liquidity risk exposure This is a risk to the Group, given the value of the Group’s commitments to charitable and investment activities.

Risk management policies and procedures The Group monitors its exposure to liquidity risk by regularly monitoring the liquidity of its investment portfolio and holding appropriate levels of liquid assets. Cash held within the Group’s cash mandate (refer to Cash reported in Figure 6 of the Review of Investment Activities section of the Trustee’s report) and the liquidity forecast is reviewed: weekly by investments management; monthly by the Executive Leadership Team; and quarterly by the Investment Committee and Board of Governors.

110 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

26. Financial risk management (continued)

Risk management policies and procedures (continued) The following table details the maturity of the Group’s undiscounted contractual payments and grant liabilities as at 30 September:

2017 2016 Three No more Three No more months than one More than months than one More than or less year one year Total or less year one year Total Group £m £m £m £m £m £m £m £m Payments falling due within one year Bond liabilities - 58.5 - 58.5 - 58.4 - 58.4 Derivative financial instruments liabilities 100.9 - - 100.9 199.3 - - 199.3 Collateral liability 347.8 - - 347.8 287.7 - - 287.7 Amount payable on acquisition of investments 5.0 - - 5.0 21.0 - - 21.0 Other investment liabilities 29.1 - - 29.1 36.1 - - 36.1 Trade creditors 15.5 - - 15.5 10.2 - - 10.2 Other creditors 41.3 - - 41.3 36.5 - - 36.5 Accruals and deferred income 34.4 - - 34.4 21.7 - - 21.7 Corporation Tax - 13.3 - 13.3 - 0.7 - 0.7 Contractual payments 574.0 71.8 - 645.8 612.5 59.1 - 671.6 Grant liability 142.8 428.5 - 571.3 120.9 362.9 - 483.8 716.8 500.3 - 1,217.1 733.4 422.0 - 1,155.4 Payments falling due between one and five years Bond liabilities - - 495.8 495.8 - - 508.6 508.6 Other creditors - - 2.8 2.8 - - 0.6 0.6 Contractual payments - - 498.6 498.6 - - 509.2 509.2 Grant liability - - 1,670.5 1,670.5 - - 1,369.8 1,369.8 - - 2,169.1 2,169.1 - - 1,879.0 1,879.0 Payments falling due after five years Bond liabilities - - 2,270.4 2,270.4 - - 2,309.0 2,309.0 Contractual payments - - 2,270.4 2,270.4 - - 2,309.0 2,309.0 Grant liability - - 219.1 219.1 - - 282.2 282.2 - - 2,489.5 2,489.5 - - 2,591.2 2,591.2 Total 716.8 500.3 4,658.6 5,875.7 733.4 422.0 4,470.2 5,625.6

The grant liability is non-contractual.

111 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

26. Financial risk management (continued)

(c) Market risk – price, currency and interest rate risks Market risk is the risk of potential loss the Group may incur as a result of adverse changes to the fair value of the Group’s financial instruments. Market risk comprises three types of risks: price risk, currency risk and interest rate risk. The Group measures returns and monitors portfolio risks in a 50/50 blend of Sterling and US Dollars and monitored Sterling and US Dollar currency exposures. This reflects the globally diversified nature of the Group’s assets, liabilities and commitments. The Group uses a number of investment risk metrics, of which the following are key; the expected ability of the portfolio to generate cash flows growing in real terms; currency exposures; expected likelihood of catastrophic failures of one or more assets held within the portfolio; and the assessed level of inflation protection within the portfolio.

(i) Price risk Price risk is the risk that the value of an asset or liability will fluctuate due to changes in market price, caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. This is a risk for the Group because its ability to fund research over the long term is dependent on maintaining the purchasing power of the asset base. The Group’s expenditure is predominantly discretionary and the Board of Governors monitor cash expenditure, commitments and the endowment performance throughout the year to manage the balance between funding charitable activities and maintaining the purchasing power of the asset base.

Price risk exposure The maximum asset and liability value exposed to other price risk at 30 September is the value of the traded investment assets and liabilities as detailed in the following table:

2017 2016 £m £m Quoted investments 13,147.8 11,347.6 Unquoted investments 9,611.4 9,339.9 Investments properties 1,390.5 1,408.0 Derivative financial instruments assets positions 178.6 148.0 Assets exposed to risk 24,328.3 22,243.5 Derivative financial instruments liability positions 100.9 199.3 Liabilities exposed to risk 100.9 199.3

112 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

26. Financial risk management (continued)

(ii) Currency risk Currency risk is the risk that the value of an asset or liability will fluctuate due to changes to foreign currency exchange rates. The currency of the majority of the Group’s expenditure and the functional currency of the Group is Sterling. However, the Group has investment assets denominated in currencies other than Sterling and is impacted by fluctuations in foreign currency exchange rates. The following table details the asset value exposed to currency risk as at 30 September:

Value as at Value as at Value as at Value as at 30 September 30 September 30 September 30 September 2017 2017 2016 2016 Group (currency, m) £m (currency, m) £m Traded investments assets US $ $15,443.4 11,510.8 $14,018.5 10,791.8 Euro €2,580.5 2,273.9 €1,791.6 1,550.0 Other 4,970.6 4,197.0 Other investment debtors balances US $ $349.7 260.7 $674.9 519.6 Euro €16.7 14.7 €143.5 124.2 Other 158.6 41.1 Other investment creditors balances US $ ($4.5) (3.4) ($5.5) (4.2) Euro (€397.5) (350.3) (€397.4) (346.5) Other (45.8) (8.6) Forward currency contracts US $ $8.0 1.9 $552.0 421.4 Euro (€211.4) (205.8) (€1,292.8) (1,139.3) Other (257.7) (229.2) Total exposed to currency risk 18,328.2 15,917.3

Impact on gain/(loss) for Impact on gain/(loss) for the the financial year 2017 financial year 2016 £m £m 10% US Dollar appreciation 1,177.0 1,172.9 10% Euro appreciation 173.3 18.8

A 10% depreciation in currencies would have an equal but opposite impact.

113 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

26. Financial risk management (continued)

Risk management policies and procedures The investment team monitor the Group’s exposure to foreign currencies on a daily basis and report to the Investment Committee on at least a quarterly basis. Foreign currency contracts are used to limit the Group’s exposure to future changes in exchange rates which might otherwise adversely affect the value of the portfolio of investments. Where appropriate, they are also used to achieve the portfolio characteristics that assist the Group in meeting its investment objectives.

(iii) Interest rate risk Interest rate risk arises from the risk that the value of an asset or liability will fluctuate due to changes in interest rates (i.e. for fixed interest rate assets or liabilities) or that future cash flows will fluctuate due to changes in interest rates (i.e. for variable rate assets or liabilities).

Interest rate exposure and sensitivity The Group holds investment cash and certificates of deposit and overnight term deposits and cash, as detailed on the Balance Sheet. These are floating rate interest bearing assets, the future cash flows from these assets will fluctuate with changes in market interest rates. However, as these are liquid assets with no fixed maturity dates, the fair value would not fluctuate significantly with changes in market interest rates. The interest bearing liabilities shown below are the bond liabilities which are fixed rate liabilities which are both held at amortised cost. The bond and variable rate liabilities value detailed in the table below is the book value.

2017 2016 Weighted Value as at Weighted Value as at average 30 September average 30 September Interest-bearing financial liabilities interest rate £m interest rate £m Maturing between one and five years Fixed rate - bond liabilities 0.83% 277.8 0.83% 277.4 Maturing after five years Fixed rate - bond liabilities 2.88% 1,297.9 2.89% 1,290.8 Total interest-bearing liabilities 1,575.7 1,568.2

Risk management policies and procedures The Group takes into account the possible effects of a change in interest rates on the fair value and cash flows of the interest- bearing financial assets and liabilities when making investment decisions. The Investment Committee monitors the Group’s exposure to interest-bearing assets, the bond liability and the related finance costs regularly.

114 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

27. Fair value of financial assets and liabilities

The fair values and book values of the Group’s financial assets and liabilities shown on the Balance Sheet are the same with the exception of the bond liabilities which are measured at amortised cost. The value of the bond liabilities presented in the Trustee’s Report Figure 6 on page 21 (£2,040.5 million, 2016: £2,247.7 million) is the sum of the fair value of the bond liabilities and the accrued interest on these liabilities. The following table categorises the fair values of the Group’s financial assets and liabilities based on the inputs to the fair value. Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows: • Level 1 ­– valued using quoted prices in active markets for identical assets. • Level 2 ­– valued by reference to valuation techniques using observable inputs other than quoted prices included within Level 1. • Level 3 ­– valued by reference to valuation techniques (to estimate what the transaction price would have been on the measurement date in an arm’s length exchange motivated by normal business considerations) using inputs that are not based on observable market data.

Assets at fair value as at 30 September 2017

Level 1 Level 2 Level 3 Total £m £m £m £m Quoted investments 13,027.4 120.4 - 13,147.8 Unquoted investments - 3,124.7 6,486.7 9,611.4 Derivative financial instruments asset positions 35.0 143.6 - 178.6 Mixed motive investments 457.2 - - 457.2 Programme related investments - - 6.4 6.4 13,519.6 3,388.7 6,493.1 23,401.4

Assets at fair value as at 30 September 2016

Level 1 Level 2 Level 3 Total £m £m £m £m Quoted investments 11,228.7 118.9 - 11,347.6 Unquoted investments - 3,277.7 6,062.2 9,339.9 Derivative financial instrument assets positions 56.3 91.7 - 148.0 Programme related investments - - 5.9 5.9 11,285.0 3,488.3 6,068.1 20,841.4

115 Wellcome Trust Annual Report and Financial Statements 2017 Notes to the Financial Statements

27. Fair value of financial assets and liabilities (continued)

Liabilities at fair value as at 30 September 2017

Level 1 Level 2 Level 3 Total £m £m £m £m Derivative financial instruments liabilities 23.5 77.4 - 100.9

Liabilities at fair value as at 30 September 2016

Level 1 Level 2 Level 3 Total £m £m £m £m Derivative financial instruments liabilities 46.5 152.8 - 199.3

Unquoted investments include investments in hedge funds, private equity funds, property funds, direct investments and investment operating subsidiaries. For the funds the Group categorises the investments based on the fair value classification of the underlying assets and liabilities of the funds. Derivative financial instruments comprise: • equity and commodities index futures and option positions which are exchange traded and valued at current price meet the criteria of Level 1; • forward currency contracts assets and liabilities which are over the counter derivatives which derive their value from market exchange rates and therefore meet the criteria of Level 2; and • long options and warrants asset positions which are valued with reference to the underlying, which are unquoted securities, and therefore meet the criteria of Level 3. For Level 3 investments: • private equity and property funds are valued at the most recent valuation from the fund manager, which is usually the net asset value of the fund; and • unquoted direct investments are held at the valuation determined by management, with valuations, when provided by a third party investment manager as a key input subject to appropriate review by management. Further details are provided in note 2 (Significant accounting judgements and key sources of estimation uncertainty).

116 Wellcome Trust Annual Report and Financial Statements 2017 Reference and Administrative Details

Board of Governors Dr Chonnettia Jones (Director of Insight Remuneration Committee Baroness Manningham-Buller, and Analysis from 1 October 2016) Baroness Manningham-Buller (Chair) LG, DCB (Chair) Mr Tim Livett (Chief Financial Officer) Mr Alan Brown Professor Dame Kay Davies, Sir Jim Smith, FRS, FMedSci Professor Dame Kay Davies CBE, FRS, FMedSci (Deputy Chair) (Director of Science from 1 December 2016) Professor Richard Hynes Professor Tobias Bonhoeffer Mr Ted Smith (to 31 December 2016) Mr Alan Brown, FSIP (Director of People and Places) Sir Damon Buffini, MBA Mr James Thomas (Chief Technology Nominations Committee Officer from 1 October 2016) Baroness Manningham-Buller (Chair) Mr William Burns Mr Ed Whiting (Director of Policy Sir Damon Buffini Professor Michael Ferguson, and Chief of Staff from 1 June 2017) CBE, FRS, FRSE, FMedSci Professor Dame Kay Davies Investment Executive Professor Bryan Grenfell, OBE, FRS Professor Richard Hynes Mr Peter Pereira Gray (to 31 December 2016) Professor Richard Hynes, (Managing Partner, Investments to FRS (to 31 December 2016) 30 September 2017, Managing Partner and Chief Executive Officer, Investment Committee Professor Dame Anne Johnson, Investments from 1 October 2017) Mr Alan Brown (Chair) MD, FRCP, FFPH, FRCGP, FMedSci Mr Nicholas Moakes (Managing Partner, Sir Damon Buffini Brief biographies are included on Investments to 30 September 2017, pages 118–119. Professor Dame Kay Davies Chief Investment Officer, Investments from 1 October 2017) Mr Stefan Dunatov Company Secretary Mr Danny Truell Dr Jeremy Farrar Mr Chris Bird (Managing Partner, Investments to Mrs Sarah Fromson 30 September 2017, Emeritus Partner Executive Leadership Team from 1 October 2017) Mr Naguib Kheraj Dr Jeremy Farrar, Mr Tim Livett FRS, FMedSci, OBE (Director) Audit Committee Baroness Manningham-Buller Mr Chris Bird Mr William Burns (General Counsel from 1 October 2016) (Chair from 1 January 2017) Mr David Mayhew Professor Stephen Caddick Mr Alan Brown Mr Nicholas Moakes (Director of Innovation) (Chair to 31 December 2016) Sir Michael Moritz Dr Simon Chaplin, FDSRCS Ms Adèle Anderson Mr Peter Pereira Gray (Director of Culture and Society) Mr Tim Clark Mr Danny Truell Dr Alyson Fox (Director of Grants Professor Dame Anne Johnson Management from 1 October 2016) Mr Philip Johnson (to 31 December 2016) Mr Mark Henderson (Director of Communications from 1 October 2016) Mr Chris Jones

117 Wellcome Trust Annual Report and Financial Statements 2017 Reference and Administrative Details

Biographies of the Governors Baroness Manningham-Buller, implications of genetics research and the Project, and Chair of the Board of the LG, DCB (Chair) public understanding of science. Westway Trust. He is a non-executive Eliza Manningham-Buller was educated at director of Pool Reinsurance Company, Kay is a Fellow of the Royal Society and Benenden School and Lady Margaret Hall, a scheme established to provide cover for a Member of the European Molecular Oxford. She taught for three years before losses arising from terrorism. Previously Biology Organization. joining MI5 in 1974. After a career which he was a Director of the Investment included a posting to the British Embassy Professor Tobias Bonhoeffer Management Association and an in Washington, Eliza became Deputy Tobias Bonhoeffer is Director at the Max alternate member of the Takeover Panel. Director General, with responsibility for Planck Institute of Neurobiology and Sir Damon Buffini, MBA operations, before leading MI5 as Director Professor at the Ludwig Maximilians Damon Buffini was educated at St John’s General from 2002 to 2007. University in . He is one of the College, University of Cambridge, where world’s foremost researchers in systems She was appointed an independent, he read law, and at Harvard Business neuroscience. He studies synaptic crossbench peer in the House of Lords School, where he gained an MBA. He was plasticity in the brain focusing on in 2008. She has been a member of the a founding partner of , a European learning, memory and how the brain Privileges and Conduct Committee, the private equity firm with global reach. He adapts to its environment. Joint Committee on the National Security was managing partner from 1999 to 2007 Strategy, and the Science and Technology Tobias served for more than 15 years and Chair from 2007 to 2010. Committee. as department head at the Max Planck Under his leadership, Permira’s funds Institute of Neurobiology and later also Eliza joined Wellcome as a governor in under management grew from €1.9 billion as Chair of the Biomedical Section of 2008 and the Council of Imperial College to over €20 billion and the firm expanded the . He has been in 2009. She was the Chair of Council its international network of offices from a member of the scientific advisory from 2011 to 2015. four to 12. Over the same period, Permira boards of numerous leading Institutions, helped to grow and build numerous In 2015, she became the Co-President including the Chan Zuckerberg Initiative, successful businesses across Europe, of Chatham House, Royal Institute of the ETH Zurich, the Janelia Farm including Homebase, Inmarsat and global International Affairs. Research Campus of the Howard Hughes aviation services group Jet Aviation. Medical Institute and the Chinese Professor Dame Kay Davies, Academy of Sciences. Damon is Chair of the Board at the CBE, FRS, FMedSci (Deputy Chair) National Theatre, Chair of the Royal Kay Davies is Dr Lee’s Professor of Tobias is a member of the German Anniversary Trust, which administers Anatomy and Associate Head, National Academy of Sciences, The Queen’s Anniversary Prizes for Development, Impact and Equality, Leopoldina, the Academia Europaea Higher and Further Education, and Senior Medical Sciences Division, University and the European Molecular Biology Independent Director of the European of Oxford. Organization. He has been awarded Golf Tour. He is also co-founder of Social the Ernst-Jung Prize for Medicine. Her research interests cover the Business Trust, an initiative to grow social molecular analysis of neuromuscular Mr Alan Brown, FSIP enterprises by using the knowledge, and neurological disease, particularly Alan Brown read natural sciences at the skills and capital of UK businesses. Duchenne muscular dystrophy. She has University of Cambridge before starting considerable experience of biotechnology a career in the investment management companies as a conduit for translating the industry, where he worked for almost results of experimental science into new 40 years. He has held positions as a chief therapeutics and diagnostics. investment officer for the past 24 years, most recently as an Executive Director at Kay is a founding editor of ‘Human Schroders. Molecular Genetics’ and a founding fellow of the Academy of Medical Sciences. Alan’s other responsibilities include Chair She has an active interest in the ethical of the Board of the Carbon Disclosure

118 Wellcome Trust Annual Report and Financial Statements 2017 Reference and Administrative Details

Mr William Burns Professor Bryan Grenfell, OBE, FRS lifestyle studies, international HIV William (Bill) Burns is a Senior Independent Bryan Grenfell is the Kathryn Briger cohort studies, behavioural intervention director of Shire Pharmaceuticals, and Sarah Fenton Professor of Ecology, studies, and the epidemiological and Chairman of Vestergaard and Molecular Evolution and Public Affairs at Princeton immunological determinants of seasonal Partners and Vice Chairman of Mesoblast. University. He is jointly appointed at the and pandemic influenza transmission. He also serves as a Trustee of the Institute Woodrow Wilson School and Department Anne is a Fellow of the Academy of of Cancer Research. of Ecology and Evolutionary Biology. Medical Sciences and has been awarded Bill has over 40 years’ experience in the With over 30 years’ experience the Alwyn Smith Prize by the Faculty of pharmaceutical and life sciences industry. researching the population dynamics of Public Health for contribution to Public He was CEO of the global infectious diseases, his research focuses Health. pharmaceuticals division of Roche on the epidemiology, evolution and Holdings from 2001 to 2009. vaccination control of infections such as measles and influenza. He has advised He previously chaired the funding the UK government and the World committee of the Health Innovation Health Organization on the mathematical Challenge Fund, a partnership between modelling and control of a variety of Wellcome and the Department of Health. infectious diseases.

Professor Michael Ferguson, He is a Fellow of the Royal Society, the CBE, FRS, FRSE, FMedSci American Academy of Arts and Sciences, Mike Ferguson is Regius Professor of and the American Association for the Life Sciences and academic lead for Advancement of Science. He has also Research Strategy in the School of Life been awarded the T H Huxley Medal from Sciences at the University of Dundee. His Imperial College and the Scientific Medal personal research takes a multidisciplinary of the Zoological Society of London. approach to understanding the Professor Dame Anne Johnson, biochemistry of protozoan parasites that MD, FRCP, FFPH, FRCGP, FMedSci cause tropical diseases. He believes in the Anne Johnson is Professor of Infectious fundamental importance of working across Disease Epidemiology, Chair of the the biology-chemistry interface and in Population Health Domain, and Vice Dean interdisciplinary research in general. for international relations in the Faculty of He is particularly interested in Population Health at University College translational research and, together with London. She was a co-founder of the his colleagues, established the Drug University’s Institute for Global Health. Discovery Unit at the University of After training in medicine at the University Dundee and led the construction of the of Cambridge and Newcastle University, Discovery Centre (for Translational and she specialised in epidemiology and Interdisciplinary Research). public health and has a clinical research career spanning over 30 years. He also directs a proteomics facility that supports much of the work of his Her research interests focus on the colleagues in the Schools of Life Sciences epidemiology and prevention of HIV, and Medicine and other academic and sexually transmitted infections and other commercial organisations. infectious diseases. This includes sexual

119 Wellcome Trust Annual Report and Financial Statements 2017 Reference and Administrative Details

Independent Auditor Deloitte LLP Statutory Auditor Hill House 1 Little New Street London EC4A 3TR United Kingdom

Banker HSBC Bank plc 31 Holborn Circus Holborn London EC1N 2HR United Kingdom

Solicitors CMS Cameron McKenna LLP Cannon Place 78 Cannon Street London EC4N 6AF United Kingdom

Global custodian bank JP Morgan Chase Bank NA 125 London Wall London EC2Y 5AJ United Kingdom

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